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>I remember once negotiating ~$5K more in base salary to "give up" what OMG COULD TURN INTO MILLIONS OF DOLLARS IN OPTIONS!!!! The company eventually went bust

>I remember once negotiating ~$5K more in base salary to "give up" what OMG COULD TURN INTO MILLIONS OF DOLLARS IN OPTIONS!!!! The company eventually went bust and sold for pennies on the dollar. Without knowing any details whatsoever, couldn't someone say the company went bust because it didn't align incentives, hiring people who insisted on $5K more so they had nothing riding on the company, and did not end up with any incentive to make it succeed? If someone hypothetically did say that, what would our response be?

carrotleads 12y ago
The incentive for an employee is his/her salary and to do their job well. They have very low effect on the success of the company other than doing their job well.
- logicallee 12y ago
  >They have very low effect on the success of the company other than doing their job well. By 'they' did you mean engineers at tech startups? They have a huge effect on the success of the company and options-based incentives directly cause vastly greater alignment and output.
  - Iftheshoefits 12y ago
    Do engineers really have that big an impact on the success of the company? Their salaries and ownership share certainly don't reflect that, in my opinion.
    - logicallee 12y ago
      absolutely! (in general the shares reflect engineers' preferences, as they do require a certain level of salary and don't want to take as big risks as the founders. founders would be happy to give them more share and less salary! they have a huge impact on success.)
pkaye 12y ago
Maybe the correct incentive structure is to give the employees a meaningful percent of shares given that someone would choose $5K towards base salary over whatever pitiful shares the offered.
ryandrake 12y ago
In this case, I'd say that wasn't what happened. As is the case in many (most?) start up failures, my take on it was that it happened largely due to circumstances outside of the company's control. The founders were awesome folks, and did everything they could to make things work. I don't think it was a problem of "alignment" at all--if the company went under we would not have jobs. That's pretty solid incentive to me. A couple of stock options (with a low probability of ever begin worth something) is not going to change that calculus.
mattm 12y ago
On the other hand, it could show that the owner's don't really believe in the future success of the company. If they really think the options will be worth millions of dollars, why wouldn't the owners just pay the $5000/yr more and keep the millions for themselves? That sounds like a great deal for them...unless they really don't believe that will happen.

carrotleads 12y ago

The incentive for an employee is his/her salary and to do their job well. They have very low effect on the success of the company other than doing their job well.

logicallee 12y ago
>They have very low effect on the success of the company other than doing their job well. By 'they' did you mean engineers at tech startups? They have a huge effect on the success of the company and options-based incentives directly cause vastly greater alignment and output.
- Iftheshoefits 12y ago
  Do engineers really have that big an impact on the success of the company? Their salaries and ownership share certainly don't reflect that, in my opinion.
  - logicallee 12y ago
    absolutely! (in general the shares reflect engineers' preferences, as they do require a certain level of salary and don't want to take as big risks as the founders. founders would be happy to give them more share and less salary! they have a huge impact on success.)

pkaye 12y ago

Maybe the correct incentive structure is to give the employees a meaningful percent of shares given that someone would choose $5K towards base salary over whatever pitiful shares the offered.

ryandrake 12y ago

In this case, I'd say that wasn't what happened. As is the case in many (most?) start up failures, my take on it was that it happened largely due to circumstances outside of the company's control. The founders were awesome folks, and did everything they could to make things work. I don't think it was a problem of "alignment" at all--if the company went under we would not have jobs. That's pretty solid incentive to me. A couple of stock options (with a low probability of ever begin worth something) is not going to change that calculus.

mattm 12y ago

On the other hand, it could show that the owner's don't really believe in the future success of the company. If they really think the options will be worth millions of dollars, why wouldn't the owners just pay the $5000/yr more and keep the millions for themselves? That sounds like a great deal for them...unless they really don't believe that will happen.