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It seems like reforms are needed to protect workers from predatory stock option contracts like these. Workers have almost no negotiating power in these cases,

It seems like reforms are needed to protect workers from predatory stock option contracts like these. Workers have almost no negotiating power in these cases, since they usually have common shares and no board voting power.

gohrt 12y ago
Ultimately, workers need to value the options properly: ~$0. Interestingly, with options/RSUs clauses in employement contracts, workers are making "investments" in privately held securities on the order of ~$100K. In general (outside of employment contracts) such investments are not legal if the worker is not signed off as a "sophisticated investor". I would like the SEC to close this loophole, by mandating some minimum disclosure requirements about the potential risks of options/RSUs, and barring employers from making misleading statements.
- opendais 12y ago
  I'd say the options are worth more like 5% of whatever their value is when you get them. They aren't worthless but it really is a high risk gamble that you are going to get value out of them.
  - RyJones 12y ago
    A lottery ticket with 5% odds of payoff would be phenomenal. I think $0 is the proper value - I've never worked for a startup that paid dollar one on options. Warning, if I work somewhere, you should short that stock / not take options. Sorry.
    - opendais 12y ago
      Fair enough. Maybe it is more like .1-1%. I made up the 5% number off the top of my head tbh. I'd really need to sit down and see what % of startups actually go public. That would be a fairer number to use. 1 in 20? 1 in 50? 1 in 100? Please keep your profile updated with where you work so I can short them. <3
    - sliverstorm 12y ago
      Does that ever get depressing? Like, "Well the last seven companies I worked for all went belly-up in a few years, I don't expect this one to last much longer..."
      - RyJones 12y ago
        If insanity is doing the same thing over and over, expecting different outcomes, I'm insane because I keep doing startups. It's all about the PMA http://en.wikipedia.org/wiki/Positive_mental_attitude http://en.wikipedia.org/wiki/Positive_mental_attitude
  - potatolicious 12y ago
    5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to internal or external factors 2 - The company will reach an exit (as opposed to flop over and die) 3 - The company will reach an exit sizable enough that after accounting for cut price, your options are still worth the value when you got them (accounting for inflation, of course) 4 - That #3 is still true after accounting for dilution 5 - You will successfully be able to exercise and exit your position without running into restrictions like this scenario. Personally, the odds of all 5 points being hit for a particular company is a lot lower than 5%. It may be worth doing the math, but almost all of the time the number is so close to 0 that it's useful just to value all options at $0. tl;dr: Never take a pay cut for options. Good God.
    - opendais 12y ago
      I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190 http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.
      - potatolicious 12y ago
        A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but leave employees with little to no payout as well (certainly not the tune the options were originally valued). Considering how difficult it is to differentiate between a "real" acquisition (with requisite payouts for all involved) and desperation acquisitions/acquihires, I doubt we'll ever see the true percentage. In any case, as an employee holding options, you are the last in line to get paid, never forget that. My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.
- UweSchmidt 12y ago
  When we reach a point where all workers value options 0$, then the current startup system is dead.
  - danielweber 12y ago
    Employers need to do something to address the candidates' concern if they value options at $0. And I don't mean "explain and promise really hard that the employee won't get screwed over." How about letting the employee's options be safe against dilution? How about not refusing third-party offers unless you agree to pay the same asking price?
  - potatolicious 12y ago
    How so? Investors put money into a company. Company uses money to pay workers. Everyone goes home happy. We're already there, only newbies and people who don't know any better are taking a discount on market salary for options. The bulk of the people I know who work at startups are demanding - and getting - market salaries, and the options are of negligible importance.

gohrt 12y ago

Ultimately, workers need to value the options properly: ~$0. Interestingly, with options/RSUs clauses in employement contracts, workers are making "investments" in privately held securities on the order of ~$100K. In general (outside of employment contracts) such investments are not legal if the worker is not signed off as a "sophisticated investor". I would like the SEC to close this loophole, by mandating some minimum disclosure requirements about the potential risks of options/RSUs, and barring employers from making misleading statements.

opendais 12y ago
I'd say the options are worth more like 5% of whatever their value is when you get them. They aren't worthless but it really is a high risk gamble that you are going to get value out of them.
- RyJones 12y ago
  A lottery ticket with 5% odds of payoff would be phenomenal. I think $0 is the proper value - I've never worked for a startup that paid dollar one on options. Warning, if I work somewhere, you should short that stock / not take options. Sorry.
  - opendais 12y ago
    Fair enough. Maybe it is more like .1-1%. I made up the 5% number off the top of my head tbh. I'd really need to sit down and see what % of startups actually go public. That would be a fairer number to use. 1 in 20? 1 in 50? 1 in 100? Please keep your profile updated with where you work so I can short them. <3
  - sliverstorm 12y ago
    Does that ever get depressing? Like, "Well the last seven companies I worked for all went belly-up in a few years, I don't expect this one to last much longer..."
    - RyJones 12y ago
      If insanity is doing the same thing over and over, expecting different outcomes, I'm insane because I keep doing startups. It's all about the PMA http://en.wikipedia.org/wiki/Positive_mental_attitude http://en.wikipedia.org/wiki/Positive_mental_attitude
- potatolicious 12y ago
  5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to internal or external factors 2 - The company will reach an exit (as opposed to flop over and die) 3 - The company will reach an exit sizable enough that after accounting for cut price, your options are still worth the value when you got them (accounting for inflation, of course) 4 - That #3 is still true after accounting for dilution 5 - You will successfully be able to exercise and exit your position without running into restrictions like this scenario. Personally, the odds of all 5 points being hit for a particular company is a lot lower than 5%. It may be worth doing the math, but almost all of the time the number is so close to 0 that it's useful just to value all options at $0. tl;dr: Never take a pay cut for options. Good God.
  - opendais 12y ago
    I wasn't advocating you take a pay cut for options. ;) But I think $0 is wrong as well. http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190 http://online.wsj.com/news/articles/SB1000087239639044372020... 75% fail. 11% go public or acquired. It is a lottery ticket but those don't sell at $0.
    - potatolicious 12y ago
      A lot of those 11% are still "failures" for the employees though - IPOs almost always are positive for employees, but acquisitions are not. It is common for floundering companies to sell or go for acquihires, in which case your options are most certainly underwater and worthless. Even in small acquisitions (that aren't just a fire-sale in disguise) it's quite possible for the investors and founders to get paid, but leave employees with little to no payout as well (certainly not the tune the options were originally valued). Considering how difficult it is to differentiate between a "real" acquisition (with requisite payouts for all involved) and desperation acquisitions/acquihires, I doubt we'll ever see the true percentage. In any case, as an employee holding options, you are the last in line to get paid, never forget that. My personal, unscientific ballpark is that the odds of exiting your options for at least the same amount as the original grant valuation is somewhere in the sub-1% range.
UweSchmidt 12y ago
When we reach a point where all workers value options 0$, then the current startup system is dead.
- danielweber 12y ago
  Employers need to do something to address the candidates' concern if they value options at $0. And I don't mean "explain and promise really hard that the employee won't get screwed over." How about letting the employee's options be safe against dilution? How about not refusing third-party offers unless you agree to pay the same asking price?
- potatolicious 12y ago
  How so? Investors put money into a company. Company uses money to pay workers. Everyone goes home happy. We're already there, only newbies and people who don't know any better are taking a discount on market salary for options. The bulk of the people I know who work at startups are demanding - and getting - market salaries, and the options are of negligible importance.