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I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Ge
by the_watcher 13y ago
I think he is saying to use the "expected value" calculation that guys like Michael O. Church and the others who warn of the dangers of overvaluing options. Generally, this applies a heavy discount to the potential value of the options to account for the increased risk. So the compensation package should be salary + EV(options) ~= big company. That leaves substantial upside in the case of a success (and if you are joining a company and taking any options at all instead of salary, you should be betting on this anyway).
Google may not be the best company to pin to, since they offer pretty generous stock grants from what I understand.
- x0x0 13y agoThe problem with ev calculations is variance (as Michael O, et al, will no doubt forcibly assert.) Employees in the bay area housing market are probably better off taking a lower ev with a corresponding much much lower variance.
- the_watcher 13y agoThat's probably all true. My only point was I don't think Sam was saying to make the compensation package that equals what you'd get at Google based on the most optimistic outcomes, but on a true, expected outcome using some broader averages (which leaves room for upside).
- pedrosorio 13y agoFor different levels of risk, it is not rational to settle for the same expected value: http://en.wikipedia.org/wiki/Efficient_frontier http://en.wikipedia.org/wiki/Efficient_frontier