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Open guide to equity compensation

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656 points mooreds | 7 comments | 13 Apr 25 19:13 UTC | HN request time: 1.698s | source | bottom
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cj ◴[13 Apr 25 20:33 UTC] No.43675640[source]▶
As our 30 person startup has grown, I made a conscious decision to stop pitching stock options as a primary component of compensation.

Which means the job offer still includes stock options, but during the job offer call we don’t talk up the future value of the stock options. We don’t create any expectation that the options will be worth anything.

Upside from a founder perspective is we end up giving away less equity than we otherwise might. Downside from a founder perspective is you need up increase cash compensation to close the gap in some cases, where you might otherwise talk up the value of options.

Main upside for the employee is they don’t need to worry too much about stock options intricacies because they don’t view them as a primary aspect of their compensation.

In my experience, almost everyone prefers cash over startup stock options. And from an employee perspective, it’s almost always the right decision to place very little value ($0) on the stock option component of your offer. The vast majority of cases stock options end up worthless.

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__turbobrew__ ◴[13 Apr 25 20:50 UTC] No.43675759[source]▶
Even if the company has a successful exit lots of times the founders have different stock class than employees which allows them to cook the books in creative ways where employee stocks are devalued without affecting founder stocks.

I personally went through a successful exit of a company where I was one of the early engineers and was privy to orchestrating the sale (working with potential buyers and consultants) and saw this happen.

I now am granted stocks which are traded on the NYSE so nobody can cook the books without commiting securities fraud.

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carimura ◴[13 Apr 25 21:01 UTC] No.43675832[source]▶
"Cooking the books" could mean many things but most people would interpret this as fraud. There are many exit scenarios that aren't fraud but rather stacks of preferential stock that get paid before common, who usually get paid last.

What happened in your exit scenario?

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matt-p ◴[13 Apr 25 23:02 UTC] No.43676491[source]▶
There's also just the case that a buyer is happy buying say 88% of the company and having 12% (usually non-voting) shares lie with employees/former employees. Stock options are only really, truly worth anything if they IPO.
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1. fragmede ◴[13 Apr 25 23:24 UTC] No.43676609[source]▶
Not since... I'm not sure the regulatory change, but if employees are able to sell back to the company or to private investors, resulting in cold hard cash in employee bank accounts, without the company going public, I'd say they are worth something. We can argue about how, without an IPO, the price isn't fairly decided upon, but having cold hard cash in the bank is nonetheless real.
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2. robertlagrant ◴[14 Apr 25 08:30 UTC] No.43679242[source]▶
I've never heard of being able to sell back stock options. You don't own anything with an option. You just have the right to buy at a price in the future.
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3. fragmede ◴[14 Apr 25 08:34 UTC] No.43679262[source]▶
I didn't say stock options. There is a mechanism through which SpaceX employees have been able to cash out some sort of financial object that they received, despite the company not being public.
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4. robertlagrant ◴[14 Apr 25 09:05 UTC] No.43679431{3}[source]▶
The comment you were replying to ended with this:

> Stock options are only really, truly worth anything if they IPO.

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5. fragmede ◴[14 Apr 25 09:08 UTC] No.43679457{4}[source]▶
fair. the important thing here is that IPO is not the only way to liquidity for early employees
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6. robertlagrant ◴[14 Apr 25 10:32 UTC] No.43679835{5}[source]▶
Well, I'm not sure it is. People are pretty aware of salaries already for example. This was about stock options specifically.
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7. fragmede ◴[14 Apr 25 18:46 UTC] No.43684696{6}[source]▶
Right so for options, when the employee leaves the company, they can convert them to shares, and then there are ways for them to sell those shares somehow, and it results in cash money somewhere down the road that isn't just the salary.