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In a lot of big tech companies, stock is a big part of compensation. This is usually in the form of Restricted Stock Units (RSUs) [0], which are just stock whi

In a lot of big tech companies, stock is a big part of compensation. This is usually in the form of Restricted Stock Units (RSUs) [0], which are just stock which you receive at various vesting dates. I don't know why companies choose to pay compensation in this way (instead of cash). Maybe because it's easier to write the contract that way (an RSU grant is a contract) than to write the equivalent contract for cash compensation. I suspect there is no good reason at all for this. But the important thing is that during salary negotiation, asking for everything in cash is not an option. So actually turning down equity based compensation (at least in this case, I'm not commenting on pre-IPO situations) is extremely bad advice. Equity should be discounted because of the risk, but RSUs are worth real money and should be treated as such. [0] https://www.linkedin.com/pulse/20140918211244-22433455-your-restricted-stock-unit-questions-answered https://www.linkedin.com/pulse/20140918211244-22433455-your-...

fredkbloggs 11y ago
I'm familiar with these instruments and with the custom. It is not sufficient to discount them for business risk or interest rate risk or any of the other common risks; they must also be discounted for concentration. Unless you were born into a large trust fund or have already accumulated vast wealth (and expect to work for only a short time more), the discounted present value of your expected future salary is going to be your largest asset. That asset is substantially dependent on the business and market fortunes of your employer; therefore, any further exposure to those fortunes represents additional excess concentration. Even if your downside exposure is limited, as it is with RSUs and options, that exposure must be devalued if it represents excess concentration. For most people, the proper devaluation is going to be 100%. You already have too much exposure to your employer. You want to lay off that exposure any way you can (as the author understands), not add more by accepting equity in lieu of cash. It's simply not correct that demanding cash is not an option. It's a business negotiation; anything is an option. You may not get all, or even any, of what you want, but categorically refusing to ask for it is seldom a winning strategy.
- JesperRavn 11y ago
  I was with you up til >For most people, the proper devaluation is going to be 100%. The author argues, correctly, that exchanging stock for its current market value is a good deal. I agree (and I also agree with you that there is extra risk from having your own company's stock). But from none of this does it follow that we should discount stock units by 100%. That is like saying that an offer of $100 with 50/50 odds, would be worth 0, or would be worth zero if the coin toss was correlated with some life event. I think the problem with your reasoning is that you are treating risk as a concept of independent importance, while it is really a derived concept, with the fundamental concept being the utility from a probabilistic cash flow. >It's simply not correct that demanding cash is not an option. It's a business negotiation; anything is an option. You may not get all, or even any, of what you want, but categorically refusing to ask for it is seldom a winning strategy. Having been involved in these negotiations and seen people's salaries and stock grants (through legitimate means), I can say that trying to get more base salary is really hard, and not worth the time. Even if you got more salary, it would come at the cost of so much less stock that it wouldn't be worth it.

fredkbloggs 11y ago

I'm familiar with these instruments and with the custom. It is not sufficient to discount them for business risk or interest rate risk or any of the other common risks; they must also be discounted for concentration. Unless you were born into a large trust fund or have already accumulated vast wealth (and expect to work for only a short time more), the discounted present value of your expected future salary is going to be your largest asset. That asset is substantially dependent on the business and market fortunes of your employer; therefore, any further exposure to those fortunes represents additional excess concentration. Even if your downside exposure is limited, as it is with RSUs and options, that exposure must be devalued if it represents excess concentration. For most people, the proper devaluation is going to be 100%. You already have too much exposure to your employer. You want to lay off that exposure any way you can (as the author understands), not add more by accepting equity in lieu of cash. It's simply not correct that demanding cash is not an option. It's a business negotiation; anything is an option. You may not get all, or even any, of what you want, but categorically refusing to ask for it is seldom a winning strategy.

JesperRavn 11y ago
I was with you up til >For most people, the proper devaluation is going to be 100%. The author argues, correctly, that exchanging stock for its current market value is a good deal. I agree (and I also agree with you that there is extra risk from having your own company's stock). But from none of this does it follow that we should discount stock units by 100%. That is like saying that an offer of $100 with 50/50 odds, would be worth 0, or would be worth zero if the coin toss was correlated with some life event. I think the problem with your reasoning is that you are treating risk as a concept of independent importance, while it is really a derived concept, with the fundamental concept being the utility from a probabilistic cash flow. >It's simply not correct that demanding cash is not an option. It's a business negotiation; anything is an option. You may not get all, or even any, of what you want, but categorically refusing to ask for it is seldom a winning strategy. Having been involved in these negotiations and seen people's salaries and stock grants (through legitimate means), I can say that trying to get more base salary is really hard, and not worth the time. Even if you got more salary, it would come at the cost of so much less stock that it wouldn't be worth it.