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Employee Stock Options?
Evil Butters asks: "ComputerWorld has an interesting article regarding the decline of Employee Stock Options. Long gone are the days when companies would pass out stock options like toilet paper (as you were lucky if it was worth as much). Since most of us are probably in IT related fields, is anyone seeing any turn-around in compensation packages -- especially for IT folk? Everywhere I look, companies are still cutting back and finding reasons why compensation does not need to be increased (except for CEO's of course) no matter what your performance is like. But according to the article, 54% of the top S&P 250 companies are (at least) using restricted stock as performance perks, etc."
Call me old fashion, but I believe the old saying "One bird in hand is better than two in the bush".
My preferred compensation is profit-based bonus. So if a company is making profit, employees share the pie, it's like dividends to shareholders except you hold your "shares" in the form of employment/position.
My company's doing an incremental performance bonus, so if this month's profit is up compared to previous month, you get some money added in the bonus pot, and the size of bonus depends on the % increase. This is ideal for employers because it ensures growth, but employees could be working just as good for 5 years in a row, but with the last 4 years without bonus.
Rock that crushes, Paper & Scissors that don't matter.
So I just saw a post that says IT jobs are getting harder and harder to find .. and now this one complaining that compensation packages are going down.
Do we need to go back to Economics 101 ??
When there are more people than jobs, they don't have to pay you what you're worth, because there's someone out there, probably equally or more qualified, willing to work for a lot less.
The days of being overcompensated are over. Count your blessings if you're paid market average (which no longer includes options). Don't like it? Start your own company.
-- People who hate Windows use Linux. People who love UNIX use BSD.
And they're worth about the same.
...is not getting the job outsourced to India.
I work for one of the 'big five' consulting firms and I was award options when I started in June.
Now that you have to expense the options, they actually cost the company bottom line.
You undermine the people who count, you and your fellow employees. Suddenly you know care about the companies profitability but the fact is that you make way more as an employee. By accepting stock you are whipping yourself.
It is in your stock's best interest and you as a share holder than all the employees get treated like shit and that cause and effect managment takes place.. Why? Because it makes the obvious changes to the value of the stock.
This is all about the taxes, and accounting. Options were great because they were paid for by investors, not the company. That's changing soon.
Now they need ways to pay non-salary money, that comes from nowhere - print more stock!. And they may as well do things that keep you around longer as they do it. Luckily, printing more stock still doesn't cost the company any money, it's from the current investors that get diluted.
It's getting really hard to pay your workers with other peoples money!
- Adam L. Beberg - The Cosm Project - http://www.mithral.com/
Comment removed based on user account deletion
... Four years ago I remember reading in TechWeek that landlords were demanding security deposits in dot com share options, rather than cash.
I wonder if they are still making such demands?
Vintage computer adverts: http://www.vintageadbrowser.com/computers-and-software-ads
Mature companies like Microsoft have switched from options (who really thinks their stock will increase enough to make the options valueable?). Instead, they favor giving stock awards; basically like a bonus.
Large public companies mostly still have employee stock purchase plans, allowing employees to buy company stock for ~10% discount.
When they gave me stock options at VMware 4 years ago I equated them in value about on par with photocopy paper.
Since we got bought by EMC and they were converted to actual $$$$, I couldn't be happier.
If the company has a product or a business model, jump on the gravy train!
I don't really see the great charm of stock options, specifically as part of your employment renumeration. Options are a crap shoot even at the best of times - a lottery if you wish. Since you're depending on it for stuff like food and housing, work compensation should be as predictable as you can make it. You want to reward me at an IPO - set me up for a hefty end-of-year bonus instead.
You want excitement - use a bit of your own salary to buy a lottery ticket (or some small-business shares). Or start a business of your own, and get all the pre-IPO excitement you can handle.
Trust the Computer. The Computer is your friend.
I like how we do it here. When income goes up, so do the wages. Could make it interesting if/when profit goes down again though.
Over 600 shares for attaining RHCE or a similar certification. The trouble is that they drag out the time when you can actually sell the shares. I hope they're still in business then... ;-)
Personally I'd rather just get a straight bonus than something of dubious value like stock. To me an RHCE isn't so much a marketable item than a validation of a person's skill set (flame suit on!)
If thou see a fair woman pay court to her, for thus thou wilt obtain love
I was called up for the umpteenth time by one particular startup. One of my ex-workmates is running R&D there, and he must've given them an amazingly glowing reference for me - he rang me out of the blue for a chat one day, invited me to lunch and I found myself at a sort of "reverse job interview" where various execs sat around the lunch table telling me what a great place it was to work, what incredible things they would be doing in the future, etc. and wanting to know how I could possibly refuse to work there.
Anyway, they've rung me up several times since - I suspect as new rounds of funding come through - and their last offer to me included good old stock options as an incentive. They're planning to go public in the next year or so, and wanted me to sign on now for the promise of wealth beyond my wildest dreams at some unspecified future date.
It was like being in a time warp, and gave me a bit of a chuckle; unfortunately these days I'm not really interested in working for a small salary while having the promise of a huge payday dangled over my head at some vague date that's somewhat out of my control.
No, not the options themselves. But the whole fight about expensing options.
Options never needed to be expensed; any dilution from option grants shows up on the bottom line and any analyst with two brain cells to rub together can tell the difference between "earnings" and "fully diluted earnings"
But folks (including many people here) cried out in favor of expensing them, and in doing so, ensured that Mahogany Row (i.e. senior management and executives) is now the only part of the company has a realistic chance of getting an option-based lottery ticket, let alone winning with it.
If you're Warren Buffett or Bill Gates, that's just fine: less folks getting rich means more room at the top. If you're the government, that's also just fine: less chance of Joe Sixpack retiring early on a long-term capital gain (or effectively tax-free via an IRS section 83(b) election) means more tax dollars as restricted stock grants are taxed just like wages. If you're Joe Sixpack (or the Fred Winecase hiring them) and either of you are in the business of busting your balls to build something and motivate yourself and/or your employees, however, you're outa luck.
So be careful what you ask for -- because given half a chance, FASB will give it to you, and they'll give it to you good and hard.
I believe that the problem is that there are a lot of other areas which need to be addressed first before stock options are even considered. First (and foremost in my mind) is health insurance, dental insurance, vision, and so forth. My wife and I are having a hard time trying to decide on what kind of insurance to get. This is because of the $1,400.00 she is bringing home, almost $400.00 of that is presently going towards insurance.
After looking up insurance, sure you can get $200.00 med insurance, but then it has a $10,000.00 deductible on it! Since we pay out maybe $2,000.00 a year max for medical costs this doesn't make sense.
Coupled with the rising cost of gas, electricity, and food in general - the average joe is thinking more along the lines of "Am I going to have enough money to even eat?" let alone think about stock options which, in some cases, are better used as toliet paper.
Speaking of taxes (as per the election where everyone kept saying that they were not going to raise taxes to pay for everything) - think of this: Every time the feds print more money it is an invisible tax upon you. Because the more money there is in circulation - the less that money in your pocket/bank/whatever is worth. So Mr. Bush doesn't have to raise taxes - he can just print up some more money and ta-da! You have just been taxed! And ya know what? They don't even have to ask Congress for permission to do so.
Someone put a black hole in my pocket and now I'm broke.
We all just had our annual reviews and got very modest raises - 1%-3%. But, the same week they announced our new health insurance plans and rates for 2005. Our costs per paycheck have DOUBLED (for not nearly as good a plan, I might add) and I quickly calculated that my take home pay will be LESS once the raise takes effect due to increased health insurance rates. To this, all I can say as a USA citizen is...Oh Canada! At this rate I'll be moving there soon.
Just as companies had to give in on a lot of employee demands back when you could flip jobs as easily as a hamburger, once the boom was over they had control again. And if there's one thing you can count on in life, a company with control will use it:
"Many of these companies, looking for ways to reward service or pay executives their just perks, are favoring restricted stock, according to a study released last month. Restricted stock comes in a number of forms and with different names, but all versions require continued service by the employee. Stocks or cash tied to business performance are gaining prominence."
Yup, it's the old 'performance' game. "Sorry, Smithers, you did good work, but the market hit us hard this year so your bonus will consist of this Burger King coupon and a pack of Doritos. Good job, son." When companies can tie things to performance, it's good for the company. No random stock giveways so that even the slackers cash out while the company isn't making a dime. Now if the company does well, you can do well, unless you're poor Smithers.
"A U.S. accounting standard that requires companies to book stock options as an expense is expected to be made final before the end of the year by the Financial Accounting Standards Board (FASB). "
Aha! The other reason! Yeppers, one other immutable law of nature: A company will never do anything that costs them money. Everything they do, even the seemingly nice things, is designed to make them money. So stock options are costing them more? Buh-bye stock options.
Where I work, in the boom times they gave out stock options like crazy. All those options are still worthless.
Now days, if you are still employed at all you are lucky. Some people who were laid off in the past and have gotten back with the company were hired back at much lower salaries. Layoffs are still going on now and then though - you'd like to think that the low performers are the first to go, but sometimes it seems these are based on salary instead. Nobody feels safe because good job performance won't necessarily save you from the seemingly random act of layoffs. Its sad, because there is still some dead weight (after all this time) that they could trim.
No end in sight as far as I can see. I think the attitude of management is to take advantage of the situation as much as possible - I think if the high tech economy turns around locally people will leave in droves.
Ok Slashdotters, now is your chance to chime in and help me. I know how selfish, shoulda sent it to askslashdot. Anyway,
My company just recently (this monday) announced that it will begin offering a Employee Stock Ownership Plan soon. I'm a young sysadmin who's parents recently passed away and I'm not experienced enough with this stuff to fully understand it and dont really have anyone to asks about specifics.
Does this mean my company will become publicly traded? I'm told my percentage of the company is estimated to be valued at $x M after 7 years. The business plan document had a lot of PHB speak in it. What I understand is that by doing this it will give the company a lot of money in capitol to grow because they will save a lot on taxes, which was in the 30-50% range (had no idea). I believe its a plan to buy the company from the founders/owners and keep them as stake/stock holders.
What are ERISA, and trustees? I dont want to get burned, I'm pouring all I can into 401K and if this can help me become a happy retired geek way into the future then I'm all about it, but I'm nervous because I've seen one of my favoriate companies go from private to public (GOOG) and I'm not sure how that will affect me.
Thanks guys. and download firefox today.
Im dreaming ofa big bndwdth, That can resist the
At my previous job we would work 10 hours days regularly, deal with customers yelling as us because a product was broken. Which we really couldn't disagree with becuase we had told the company it was broken before it shipped, but it had to be out by that date because some salesman asshat decided to promise it to the customer on that date without consulting engineering and/or integration; and, of course, the company would never miss a ship date and make the salesman look like the idiot he was.
This all got worse as the company did worse and worse, and its stock slipped under a buck. Not only did the company not offer stock options, no one would have touched them anyway. The real kicker was that we had not seen a raise in three years, but we had seen several CEO's (6, I think) get hired, serve for a short bit and then be let go with a generous severance package. In the end, the company did a re-organization and tried to get the Customer Support and Integration departments to move to San Antonio, Texas (I live in Southern California), with the exception of the least trained tech, everyone told them, "hell, no". As for myself, they offered me a somewhat ambigious position in the Engineering department, which was to stay in So. Cal. I was to do software testing and development (at a very basic level), support the local network, and whatever else they threw my way. Oh, and I would have to field support calls that the utterly untrained staff in San Antonio couldn't handle (a.k.a. all of them). I was told that I would get some sort of raise out of this, but for 4 months running, and right down to the last month before the re-organization was finalized, no one could give me any sort of number. So, I found a job elsewhere. I started at a higher pay, by a pretty good jump, the stress is way, way, way lower, and I actually enjoy what I am doing. Plus, the prospect of regular raises are much higher.
In all, the IT sector is still alive and kicking, you just have to keep trying; and don't be afraid to tell your current company to go fuck itself.
Necessity is the mother of invention.
Laziness is the father.
yup one company I worked for issued toilet paper at least 4 times while I was with them...Not once were they worth more than used toilet paper.
Now the company I work for, which has been around for abou 19 years issued me stock options that have never been worth what the stock is selling on the market. If I were to exercise these options I would owe money!
Once upon a time I had several thousand shares of stock options with my old company. I shudder to think how much money I could've made had I blown the wad at the right time... Easily 10's of thousands.
Could've.
Back in late 2000 it ran all the way up to 40-something, rung the bell, and then cratered. The whole time I made the mistake of holding onto them out of some odd form of loyalty.
My biggest tip to those that have them, DO NOT hesitate to excercise them when the stock runs up. A sunnier day might come, it might not.
As it stood, when I was laid off my options were underwater and not worth the paper they were printed on. I've since lost them, but last I checked they were still underwater.
Easy come, easy go. I would not take them instead of a hard raise.
we get stock when signing with the company, and have a very generous employee stock purchase program. it's good to be the king.
I work for a personal bank, privately held where the employees can purchase stock in the company. Most if not all of the employees avail themselves to this option. Its funny when they brought on a new board member there was no non-employee stock for them to give to this board member. Its a great thing working for a place where the list to get stock is longer then the list of employees and anytime an employee sells any part of his or hers, its a large increaces in the price compared to the actual price/share. It will help pay for a house some day for me
Every single hundredth of a stock option that I was ever offered, has proven to be $20 out of my own pocket. Most companies who offered me these weren't even around long enough for me to vest, or the company would "outsource" the department -- conveniently, just before the vesting period.
But what to do when a company is offering stock options? Since I'm looking for work, I just not and smile, rather than give them a piece of my mind.
Then again, it has been a while since I went on an interview. BRB, gotta send out another couple thousand job applications... I track and rate the recruiters I contact, shouldn't you?
Zhrodague.net - I do projects and stuff too.
But then, I work for a startup that can't afford to pay prevailing wage in real cash, yet. We're paid largely in options, and my retention bonus is likewise an annual option grant. As soon as we can afford to pay real cash (RSN), I expect to see the former variety disappear -- completely unsubstantiated rumor is that some prospective investors have been unhappy about how many options the peons now posess, especially from back when our (privately held) stock was uber-cheap.
I don't know what you guys are talking about. Haven't we all learned to stop believing the media? Silicon Valley is starting to boom again. My friends can't find enough qualified job applicants to hire. Some have even started using recriuters again. The posts on craigslist have jumped 5x in the last year (http://www.craigslist.org/sof/)
... Yahoo is looking ... EBay is looking ... Salesforce.com is looking. And you guys are crying about no opportunities?
Google is looking
In a meeting with a potential investor in a startup I was with, he made a great point: "It's easy to sit in a room with a bunch of other folks and delude yourselves into thinking you've got a great idea".
So what if the company provides stock options? What are the realistic expectations the company is going to be successful enough for the options to ever be worth anything? Will your seemingly large position be increasingly diminished as new investor money dilutes the share pool? Would you be better protected with a restricted stock grant? Look at the total compensation package, including protection from dilution of your options, after you have thoughtfully considered the delusional aspects of signing on with a new company making grand claims.
Ask me about my vow of silence!
I'd say I've been treated well, way above average for the industry. The reason I bother to comment is to encourage those who think there's nothing out there anymore! If you're smart and you hit the right company, there are still killer compensation packages to be had.
Posting anonymously for obvious reasons.
still does. It's a ... convulted calculation, but you end up getting between 2-4x your monthly salary in stock at the end of the year. So if you make 5k a month, you can end up getting between 10 and 20k in stock; which you can sell immediately if you so desire. (They also have an end of year cash bonus equal to 1/2 of one months salary.)
Here's a note to other companies: this stock bonus ploy keeps me working for them when I might otherwise seek other employment. Pay/treat your good people nicely, and they'll respond in kind. Treat your employees like crap, and they'll respond in kind.
(ok, I'm really tired.. err, that's my excuse.)
feh. stuff.
Funniest thing I heard all day.
I had my job outsourced almost 2 years ago and just now am I working again. Had I not gotten this job, I probably would have cried instead of laughed.
The company I worked for gave 100 shares (~$8000) to anyone who completed a degree through the employee degree program. The offer was good for all full time employees (shop, clerical, engineering), for any acredited degree (some peeple when to the culinary institute 45 minutes away). That program was the best reqruiting tool they had, Everyone I knew who was under 30 and working there, signed on because of the employee scholar program. They have cut back some in the last two years, but the program is still pretty good
The company was a Dow componant tech company.
"I'll have a Guinness, no wait, make that a Coors Light" -Grad student I work with, who shall remain anonymous...
Programmers are a lot like lawyers, value-wise. Like lawyers, the value of programmers is, or traditionally has been, their creativity and intellect. Better tools have reduced the value of that personal asset in programmers, but not eliminated it.
It is notably different from most engineering in that the products do not require large capital to distribute, once the creativity is complete.
In this manner, I have often wondered if programmers would work better in limited liability partnerships rather than corporations. A small group of programmers who produce on contract to corporations would be, if well organized, very valuable.
The corporate structure lends itself to growth in traditional economy, whereas a larger programming companies have, in my limited experience, not been efficient. There are exceptions, like Electronic Arts, I think.
But the hierarchical view of corporations, looking down upon employees, is flawed in the programming world because the direction of the company is often better felt by the programmers themselves, and management has often had a terrible disconnect from the technical reality, and a tendency to dictate where they should listen. Good management isn't necessarily this way, but many people cling to this management style.
In a partnership, the partners would be responsible for bringing in clients, the design, the programming, and the effective reuse of code. In a corporation, they are typically responsible only for the programming. I believe savvy programmers would be much better at selecting appropriate clients and choosing the direction of the code. I believe, when it comes to the effective reuse of code, a partnership would have better structures adopted to accommodate it.
This sort of delegation among partners has been very effective, in my opinion, in lawyer partnerships. I believe the effectiveness could translate into programmer partnerships. Mind you, moving programmers into management positions in companies may have the same effect, but I think the hierarchial structure inherently causes problems. The distinguishing feature being that in a partnership, management would also be programmers, and vise versa. There wouldn't just be a "delegation to programmers" by management, so to speak.
Just food for thought.
Historically, the startups that have done the best are those with broad based options programs. The reason is that a good option program:
1) curtails employee turnover(i.e. folks like a winer and once a company hits its employees can move more easily).
2) Organizations with extreme economic inequality are unstable. The legitimacy of leaders who are doing well when noone else does comes into question _real_ fast. When an management has no loyalty to employees, lots of nasty behaviors become commonplace--broad based options can help contain that.
And landlords were accepting. I dunno about landlords demanding.
Options are cheap for companies to give out. Cheaper than cash. Which is why they give them to employees and why they would like to pay for their buildings in options too.
A few cities even got stuck with worthless options as many (Fremont) were getting into building campuses (alleged incubators) for tech companies right near the time of the crash. Actually, past the end. Many weren't yet completed when the crash happened.
In the compensation field, this is the biggest topic. In the silicon valley compensation area, this is the only topic.
At the end of the day, the CEO's pay will not change. As others have alluded to, you pay the CEO enough to keep him from going to another company, as he is the most important person (generally) who has the most significant impact on earnings. If he can make you a fraction better than your competitor and your revenues are $1BN, a few million in pay is worth it. This will generally hold true for the upper executives who report to the CEO as well.
However, what about the little guy? The same holds true. They'll pay you what they think you're worth. Around the nation, it's not going to affect you that much. Pay is pay, and even if you get fewer options you should be rewarded in other ways (better stock performance due to the lower dilution, higher salaries/bonuses, etc). If you're not, there will be someone who will pay you what you were making before.
If there isn't, that means you were overpaid because the company could pay you and not expense the compensation. Sorry.
Here's the real kicker: ESPP's. Many companies allowed employees to purchase stock through ESPP's (Employee stock purchase plans). You could purchase stock at a 15% discount (so buy a $10 stock at $8.50) with usually a 6month to 2 year lookback. This was a huge source of income for many working at these companies. These practices will now be expensed, and companies will begin getting rid of ESPP Plans.
So, let's say your stock has fluctuated from $10 to $15 over the last two years. It's currently at $14. You have a 2 year lookback, so you can buy at $10 with a 15% discount which equals $8.50. Think about it! You can use 15% of your salary to do this. Let's say you make $100k per year. You buy $15,000 worth of stock at $8.50 per share, or 1,765 shares. Assuming you hold these shares for 1 year and the stock price neither drops nor increases, you can then sell it at $14 per share. That's $9,700 in extra income you're losing by this plan going away.
So basically, if people cut back your options or ESPP plans, demand a higher salary, higher target bonus, or a company car. If the company is unwilling to increase your compensation, then find someone who will.
I'm not going to go into the tax implications of Rstock vs. Options and why companies do things a certain way. If you have questions, contact me. I'll put up a yahoo addy so the spam goes there. razzak()jallow(@)yahoo.com (no parenthesis)
*Note: I'm not an advocate for or against expensing options, but I do feel it allows the non-expert investor to more easily compare performance across companies that grant options and those who do not.
If they start handing out options like they did before they may create competition for themselves once the stock market goes up. How? Again, simple. Let's say you're hired into a large company. After years of economic downturn its stock is probably at the lowest point in years right now, probably at its global minimum. If you get stock right now, and tons of it, and your stock triples or quadruples in five years, you'll be "outta here" looking for shit to do on your own. This may as well create a threatening startup of some kind. Not good for a big co.
We're lucky we have Health Insurance.
I think that's just how we're meant to feel, too.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
I don't think you can own *options* in physical form, but the certificates of the shares themselves are some sort of stiff, heavy paper that would be really uncomfortable (and perhaps even dangerous) as toilet paper.
This assumes that the productivity of happy employees vs the productivity of employees treated like shit is less than the difference in costs. Remember, the bottom line can be boosted by increasing revenue or by decreasing expenses.
"Here, have some stock...."
If I had been buying stock options over the last 6 years at my work, I'd be loosing money. The merger is buying at 15 dollars, so when our stock was over 15, 80% of the time, where is the profit?
If started buying stock the last 2 years when it was at 5-10 dollars, id be making a profit.
So, the new people made money, the long term employees have lost money.
Also, as for a yearly bonus, I have mixed feelings. The company uses bonuses as carrots, they inflate your pay, but you loose it when the company has poor performance. You work 100 hour weeks and can still loose your bonus. They use the bonus as a carrot and a stick.
As for options, hell, Id owe money if I bought them.
My stock options at AOL are basically toilet paper.
I got $72/share when I started there. When I left, I could opt to abandon them or go deeply into debt buying into a sinking ship.
My current job is employee owned and we get a grant based on a percentage of our annual salary. Much more realistic.
Don't anthropomorphize computers, they don't like it.
I'd say in a lot of cases, stock options are a good idea. If I was working for a small company that I believed would succede, espically if I was in a position where my work directly influenced the result, I'd probably be willing to take some options instead of cash. Not all options, I need money to live on, but if it was enough to support me comfortably, I could very well see forgoing the extra money in favour of a potential payoff.
The real question is if the company has a solid plan that looks like it will succede. If it's all pie-in-the-sky stuff that has no solid plan of how to make it happen or how to market it, insist on cash up front. If it's a a solid idea of how and what to development, and research to show it's marketable, then some options look like a good idea.
Of course it may all fail, which is why you have to know your limits. However it'd be easy to talk me in to options instead of a raise if I believe the company is going to succede and if my effort can help determine that success.
While I was at Morgan Stanley, I think the company discount on the stock would be 15%. There was some heavy regulation, and process that you had to go through in order to purchase it however. Another thing that was part of the companie's policy: Employees aren't allowed to touch stock of companies that Morgan is involved with, so no google stocks for employees... Just my experience. Hope I didn't accidently leak any IP.
...But when I worked for Hewlett Packard phone support (tier one and two) through a third-party outsourcer, employee compensation was terrible. At first it was pretty much non-existant; our Christmas bonus 2 years in a row was $5 in coupons for the vending machines in the break room. And it only got worse when the outsourcers management underwent a change and they added the Pay-For-Performance system. Basically, if you completed all of your calls within a certain time metric, you would get a bonus on your paycheck. Unfortunately for the customers, the metric that was laid down made it entirely impossible to solve the most common issues in time to meet the goal.
So in the end, the support reps that don't give a damn about the customers would just find an excuse to end the call prematurely if it looked like it was going to take a while and get a nice fat bonus every paycheck. On the other hand the honest reps, like me, stuck it out for the nasty calls that would take up to 3 hours to complete and get absolutely zero bonus pay.
98.9% first-call-resolution to my credit, and no recognition. I didn't even get my yearly raise my last year there due to vast upper-rank incompetance. I'm SO glad I quit.
-
"Sometimes you have fun, and sometimes the fun has you"
Seriously... everyone needs to demand more and stop settling for less.
Make these rich bastards pay up. CEOs make too much money.
Bussiness landlords. I could see that. Landlord sees all the .bomb stocks skyrocketing and gets greedy. So when one wants to move in, wants payment in stock, figuring he'll make out like a bandit... Which he would if he cashed out at the right time.
I am a three-time loser in the stock-option arena; 1) early 80's "100,000 shares - at $10/share that's a million". Worthless. 2) Mid-late 80s - "hey you have 5% of the company stock!". Worthless. 3) "Recent" dot-bomb. 'nuff said. Worthless.
You are far better off negotiaing a fair wage, fully funding your IRA, 401K, SEP IRA, what-have-you. Hey, take a flyer once-in-a-while, if you can afford it, but remeber, it's like playing the lottery - "you can't lose if you don't play".
Paying quarterly taxes is a bitch, getting big fat gross checks is what everyone should get to realize how much we pay in taxes, if you pay your taxes without withholding. If you make even a little bit [I pay over 50K USD year in taxes and don't feel "rich", don't drive a BMW, don't vacation in exotic places...] you see how much "the rich" pay in taxes.
This issue is a bit more complicated than you think.
The company I work for has given options as compensation in the past, but they do it very rarely and I haven't had the opportunity to receive any yet.
FoundNews.com - get paid to blog.,
I went freelance and am doing better than I ever did at the companies and corporations I worked for in the past.
Ditto that. I kept losing every job I got because of incompetent management leading to the company going under. I finally started my own company, and make about twice what I did before, and I get to work from home where my wife and brand new baby boy are. Plus, I've kept at it about three times as long as my longest stint at employment.
I don't see why my success should depend so much on other people's abilities and decisions. That's the problem with stock options. Sure, they're nice if you work for M$ or Google or Amazon before their IPO, but 99.9% of the time taking stock options is like placing a bet on the competence of your management.
Think about it. Can you even wrap your brain around the concepts of "competence" and "management" at the same time? I didn't think so. Forget about stock options. Find a company with better incentives.
Punctanym: alternate spelling of words using punctuation or numerals in place of some or all of its letters; see 'leet'
As one of many who briefly had a small fortune in stock options in the late '90s, I can tell you from experience:
The beginning of this year I received a fair bonus in addition stock options, so no complaints there. However, they DID just raise the price of items in our vending machines by 25%, and I'm PISSED.
Oh, and health insurance took an expensive turn for the worse. Seems like if they raise the prices of snickers and less people eat them, that health insurance would be less expensive.
Some times I just don't understand the world.
...thanks guys.
You spent two years out of work? There was nothing else you could have done in the meantime?
Maybe they should start offering credit courses in humility at the big CS schools.
Working for a weekly or monthly cash salary will never make you wealthy. To build real wealth you will have to create something of value, such as a company!
http://www.billparish.com/msftfraudfacts.html
...
3) Convincing Employees to Take Less Real Wages: Microsoft aggressively markets stock options to new employees in an effort to take wage expenses off the books. They also know that they can pocket the exercise price employees will be required to pay to take ownership of the stock. What also seems clear is that Microsoft is still aggressively marketing its stock option program to new recruits. To quote an email received, "I am about to begin employment at Microsoft and the stock option was the selling factor. Does your article overall state that it will be bad for me and will fail me in my retirement planning?" Is Microsoft fulfilling its disclosure obligations to its own employees, especially those that have put their entire 401K balance in Microsoft stock? This explains how 22 percent of Microsoft's massive cash balance has actually come from its own employees in the form of them prepaying their own wages through stock option exercise prices.
6) Stock Option Accounting: It is important to note that any discussion of stock option accounting must address two completely different and independent situations. The first is to analyze the impact of options exercised and already retired and the second is to analyze the remaining options debt outstanding. This study focused on both whereas most media coverage only focuses on the remaining options debt outstanding.
Options Exercised and Retired: When stock options are exercised, the options are retired as the employee takes ownership of the stock. The value of these "retired" options should not be a subject of debate. Upon exercise, the options are valued at the market price of the stock less the exercise price and the employee pays W-2 taxes on this gain, even if the stock is not sold. The company then takes a tax deduction for wage expense for the same amount. What is surprising is that not a dime of this expense is charged to earnings at Microsoft, which they could voluntarily do. This amount alone for 1999 should exceed $9 billion even though net income is only $7.8 billion.
Remaining Options Debt Outstanding: The remaining unexercised stock option liability is a completely separate issue and a debt just as real as the current stock quote, especially if half of the options are currently vested and exercisable. We all know that stocks can be over and under valued yet the market gives us a price on any given day and that is the price. The Black Scholes and related footnote disclosure is a great mathematical model yet has become nothing but a Trojan Horse for plundering the retirement system. What the Treasury Department and Federal Reserve might concern itself with is that this debt, $60 billion at Microsoft, has no interest cost that hits the income statement and increases $800 million with each $1 increase in the stock price. Simply put, Microsoft is somewhat immune to Federal Reserve interest rate hikes, which explains why the stock is increasing as the Fed raises rates and continues creating a Long Term Capital like debt pyramid.
Stock options were the ting of the 90's today they are wothhless.
I still have about 1000 shares of AT&T proper that I can not act on until the damn stock goes back above 60.00 Oh yeah, like that will happen in the next 500 years.
Companies love to issue options today that are insanely high to ensure that the millionares of the 90's do not happen again.
sorry but if the CFO and CEO is not making 900 to 1000 times the IT people they get all pissy.
I think we all know what happened there. :) Handed them out at their exact peak, not a penny less, not a penny more, exact! It was bombsville from there. Just kept sinking and sinking and sinking....
Now? Let's not even joke about poor Worldc... I mean MCI. Can't run from the past, boys!
I think your bald assertion is unsupportable.
Extreme economic equality is pretty much the norm. If you want more and can get more, good on you. But I've seen plenty of companies with great options programs crater (General Magic) and companies with relatively non-paying programs do well (Apple of late, HP didn't go public for a long long time).
I don't know if the two are really related.
Show me the hard cash!
I'll take cash bonuses over stock options anytime. I had 10000 shares of my companies stock options and yes, I can do better in the Iraqi stock market now. I've been holding on until the stock can get back to the original offer price before I cash in. The problem is that the stock price of your company really has nothing to do with what your real performance is. Their are many factors beyond your control (unless your C-level) that will affect the stock price of the company. In God We Trust, others pay cash!
Stock options aren't gambling. They are shared ownership. Corporations are structured for the benefit of ALL shareholders (but not necessarily employees). If you don't want options, trust me, most companies won't feel bad about paying you more cash instead. The more stock that stays in the stock pool means the dilution is that much less for everybody else.
Yeah? Well I think you're overrated too.
As long as they're with Microsoft, not the company I work for.
if you're negotiating terms with a startup, you may find they'd like to offer a reduced salary and make it up with options vesting monthly. it's hard to figure out if you're getting a good deal because nobody can tell you how to value the options.
however.
anyone can tell you how to value the company's stock: it's whatever price they're currently offering to investors. if you're feeling ready for a tough negotiation, suggest that your salary is $X, and they can pay you that as $Y in cash and $X-Y in stock (not options), at the current valuation.
this might or might not be a better deal than options (you'll only know in hindsight). and it's an unusual enough thing to ask that it's going to take persistence on your part (that is, they must really want to hire you). more likely, thinking in these terms will make it clear just how bad a deal most options packages are, when offered as an excuse for lower cash compensation.
Ok, I'm curious about people's experiences. If you work for a large company, and especially if you're "Joe IT Worker", a non-manager sys admin or programmer type, have you ever done anything that has, up or down, influenced the price of your company's stock in any meaningful way?
I've been at my (quite large) company a long time, at times I've been a stellar performer (and my performance reviews have indicated as such), and at other times I've been so-so. Through it all, I highly doubt that I've ever, ever, done anything (or ever had the opportunity to do something) to influence the stock price of the company even one penny up or down.
At the same time, I've seen plenty of examples where the company stock price benifited, or was the victim of, market whims, regional economics, good or bad luck, questionable decisions by upper management, etc.
So, I can see large company's giving stock options to lower level IT types as a way to retain employees, but do these company's really think that options are going to influence this type of employee into being a better performer? Are employees at these types of companies really gullible enough to think that they can make a difference?
Understanding is a three edged sword. - Ambassador Kosh Naranek, Babylon 5
... but perhaps your experience says more about the jobs you are taking than it does about stock options in general.
Over the past 7 years, I've worked for 3 different tech companies. They've all offered me stock options, and the options were eventually worth Real Money -- which I took advantage of -- in each case. And I'm an in-the-trenches geek, not at CTO.
Options can be bullshit, if the company is badly run.
But they are certainly not bullshit in general.
What you should be talking about are health benefits. Sheesh, this is our time of the year to update and change plans and I was shocked, shocked at how poor the plans are this year.
Makes me think I should have paid more attention to the political campaigns before voting.
If I was given these plan options 10 years ago I would have laughed at them and walked.
The medical prescription plans have gone back to the stone age. This is a huge company, some 26,000 employees and this is the best they can do?
This shouldn't be a suprise. After the Enron scandle, the Sarbanes-Oxley Act changed the way companies have to expense stock options, essentially making it more costly to fling stock options all over the place. Oh, when you said you wanted them to stop giving out so many options, you didn't mean that YOUR options were the ones that should be eliminated?
Options ARE NOT, ARE NOT grants.
Grants are GIFTS of stock outright. Options are the odds that the stock will sell at a lower price than the strike price when you exercise them.
EVERY single person I know is underwater on their options. Every Single One.
Options are essentially worthless in this market for the forseeable future. They were a useful tool to attract people by offering them a great deal of other peoples's money in the future.
Why is the parent post rated "Funny"? Its actually a sad truth that a ton of unemployed ITers are being faced with.
"On a scale from 1 to 10, people are stupid"
You are getting stock, not stock options - this is getting more common. We used to have options grants, but have forgone this for a combination of cash and stock grants.
jack shit, I personally won't mourn the loss.
I could live 10 years at the same comfortable level of life I currently have. Without moving a single finger (and this assuming high taxation and that the money earns 0% interest).
IANAL but write like a drunk one.
I took a new job this month. Big pay cut (but I got at the very top end of what I expected, those expectations were based on the market for software engrs in my [very high tech] area). I got plenty of options. A bit less than my previous company (which I started at in 1998), but this company could conceivably start planning an IPO any day, based on how well our sales have been doing. So I view it as a net gain compared with my previous job.
I quit buying company stock about 5 years back and used the savings to payoff more principal in my home. It's appreciated about 100% over the last five years while company stock has tanked. Oh yes, this was about stock options.
Yes, I have a bunch of options with the Fortune 500 company I work for. The option price is $68 and the stock is currently selling for less than $20. I'd lose $48 on every share option I exercised. Now if I needed a loss to balance some huge wins somewhere else it might be worthwhile. But these? I'm going to let them drown.
I suggest you start your own company and make yourself CEO. You'll be rich!
Because my experience doesn't match anyone else who posted in this thread.
This year I made $50,000 from an employee ownership plan at my last employer that paid out when they sold privately.
I have stock options in my current employer. My employer is profitable and growing rapidly. If we went public at a P/E of 20 and all of my options vested (most would vest immediately upon a pricing event, the rest will vest within 3 years), I'd stand to make a bit more than I did from my last employer. Of course that could turn into nothing - my plans don't depend on receiving a dime from options (I get a decent salary as well) - but I suspect that I'll see something for my pains.
This isn't going to make my fortune, but it isn't anything to sneeze at either.
YMMV and probably will. I'm an expert in my field, and there is a shortage of good people in this area. However it is possible to find companies that hand out some options.
Stock options are like a carrot on a stick as an incentive to win the the equivalent of the super bowl.
Case in point.. It's not the incentive it used to be.. I have some options with an option price of over $60/share. The stock is near $20 per share.
The options I get now are nice, but the very slow rise in the market are not going to provide a great retirement fund.
Now the options I had at a price of $18/share when the stock was over $60/share were exciting. That was incentive!! Sadly those days are over.
The truth shall set you free!
I have 5,000 shares from a company whose technology I really believed in. I got it after the FIRST RIF. It is now useless for TP, as it is printed on 20# stock. (I would tell you who, but I don't want word to get out:^) Not to be confused with a friend that has worthless stock in four (Count 'em, four) comatose, but still on life-support companies. As they say in the Ohio lottery, "You can't win if you don't play". I think it should be "Even if you play, you probably won't win"
My wife doesn't listen to me either...
I'm currently working for a Privately Held company, and the benefits are one of the main reasons I'm with the company. I have full medical and full dental (only minus is a lack of vision). On top of that, we have stock options (albeit restricted due to the private nature of the company), and a profit sharing bonus that over the last 3 years has been 25% of salary due to booming business and low staff.
Although it might be rare, the company mindset is that the reason we're doing as well as we are is the benefits. The CEO of the company routinely defends our profit sharing and other benefits and company-wide meetings as a well deserved benefit for hard work. Now of course there is a degree of bull in there, but there is never any talk of reducing benefits. On the other hand, management meetings routinely discuss that we'd likely lose people in the event of a loss of benefits (especially profit sharing).
I think it depends on the company. Public holdings are likely to be less generous these days, but small privates I don't see it.
fully funding your IRA, 401K, SEP IRA, what-have-you [...] Paying quarterly taxes is a bitch
Well, there's no way to make it cheaper, but there are ways to make it easier. For the last few years I've used companies that let me, more or less, outsource the paperwork to somebody else. I've heard them called employer-of-record services.
The basic deal is that I go on doing my contracting thing, except that when we get to signing the paperwork, I have my client call them. Then the shell company invoices my client and pays me regular paychecks after deducting for whatever benefits (401k, health, dental, life insurance) that I choose to buy from the menu of options they've set up.
It's great in that it let me focus on the stuff I like (finding and doing the work) while they take care of all of hassle of benefits, invoicing, and taxes. It's especially nice to have them play bad cop when a client is late paying an invoice.
I've used Zero Chaos in the past, but didn't like them much. A couple of years back I switched to mybizoffice.com which, other than the dorky name, has been great. They've been flexible about contracts and billing arrangements, and they always pay on time.
Unless you are a major player in a company, stock options are always worth more to the company than they are to the employee. They are therefore a stupid tool to use for compensation when, for the same value to the company, it is possible to provide something of greater value to the employee.
Aside from being paid in risk, and listing your bonus as a capital gain, options aren't terribly great. Why not get paid in actual stock?
If you worked for Microsoft, would you rather have options or stock when they pay out an unprecedentedly huge dividend? The answer is stock. Not to mention that options dont have voting rights, etc. In my line of work, I'd rather be paid for performance than marginal increases in performance.
I Browse at +4 Flamebait
Open Source Sysadmin
The last company I worked for gave stock options in leiu of higher salary. It turned out to be a soggy deal. Several of the ranking officers of the company were indicted on charges of industrial espionage and theft of trade secrets after raids on the corporate headquareters turned up source code they'd stolen from their former employer, a competitor. This and subsequent court rulings and announcements sent the stock on a wild rollercoaster ride. The situation for employees was made even worse by the onerous restrictions placed on the sale of stock which included requiring employees to use a company designated broker, thereby giving the company an effective pinchpoint to prevent lots of shares being sold at once. After frustrating rounds of phone tag, many gave up. Another restriction was a "blackout" period when sales were prohibited. These were 3 week time windows centered on the announcement of quarterly earnings.
When I left, I was vested for about 1000 shares and had options on 700 more. But they were underwater and stayed that way until the options expired. Finally, the restriction to use their broker was lifted and I handed the certificates to my broker who sold them after a favorable court ruling caused the price to spike. I bagged $8k after taxes, chump change considering all the 60 hour weeks I'd put in there.
I worked another place that gave large cash bonuses. It was a small place with spartan benefits. You had to pay 1/2 your health insurance, for example. This bonus was based on how well the company did that year and the president's perception of your contribution. This created some interesting office politics. One miscue on your part, spotlighted by "concrened" coworkers might overshadow a whole year's worth of solid performance. Then there's the tax bite. Chawmp! It ain't like havin' a 401k. another disadvantage is that if you leave, you don't get a pro-rated portion of that year's bonus. At least the options are portable.
Both stock options and lump sum bonuses lean on you. When much is "given", much is expected. But in each case there is too much stick and not enough carrot. I prefer a competitive wage and a 401k to options and large lump sum bonuses.
Wansu, th' chinese sailor
So I'm inclined to say... nope. No stock options for you!
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
Companies like Microsoft work for their stock options.Companies like Apple work for the end user. Open source efforts work for their developers. We need a model of business that serves all 3.
...whatever the reigning conventional wisdom is.
Everyone on this page is so *positive* they have it all figured out, that stock options are worthless.
That should be a pretty good indication they are bound to make a comeback.
If you are getting a decent salary and you like your work, don't sniff at those options.
Mine vest based on stock performance. In fact, we've closed above the necessary point for five consecutive trading days; five more and they'll be vested.
Of course, I work in the Fortune 20 (also Global 50), so YMMV...
Slightly off-topic but it reminds me of when I signed a lease last month. I have great credit and plenty of income to cover the bills. Instead of paying a $500 security deposit the apartment manager was trying to do my a favor by letting me pay an $80 non-refundable bond for security insurance. Basically I had to pay an $80 fee to a company that would claim any damages from me for the apartment company. Now why would I want to pay $80 non-refundable vs $500 refundable in 12 months. When compared, the $500 is like getting an $80 return on a $420 investment.
I started working at this new place about two months ago. My salary is high five-digits, about a 14% increase over my last job, and I got many, many, many, many stock options. Of course, the likelihood they'll pan out is ... small. But if they do ...
:)
Oh, worst part? Free food, free drinks, great people to work with, and sane management (well, for some value of 'sane'. My boss works crazy hours, but seems to feel that other people working those same hours is unhealthy. Pot. Kettle.)
These places exist. They're rare, though.
And at least one of them is hiring
What company was it, recently (in the news), where the CEO was hired, "led" the company for 18 months, the board fired him, but gave him a HUGE severance package - upwards of 100+ million - that got the stockholders of the company in a tizzy and now they are suing the board (and the former CEO, maybe)?
I'll tell you what - let me run your company - any company. I certainly can't do any worse than any of these other bozo's - hell, I bet I could do better. You can even have me at a bargain: make my salary $75,000 a year, and if I don't do good after a year, cut me loose with a $2 million severance package.
Hell, that has to be a bargain - come on - someone out there needs a CEO, and I am serious!!! I will run your company, and you get my services cheap.
It galls me - that someone can run a company into the ground over 18 months and be cut loose with a severance package that will dwarf my total lifetime earning potential. Idiots making bank - what kind of screwed up crazy world is this?
Reason is the Path to God - Anon
Not performance incentives. If you are marketable, then people might want to hire you away. Options that vest over time give you an incentive to stay at the company, and it does cost a lot to add new employee, in training, and also long term knowledge of the people who are there.
For every tale of woe you can share about stock options, I can show you a dozen multi-M$ homes in Saratoga, Los Gatos, and Woodside that tell a different story.
Open your eyes Conner. Work hard and choose the right employer.
Back in my day, companies didn't even hand out toilet paper. You were lucky if they let you go to the bathroom at all. That's why we didn't drink coffee. Not that we could afford it anyway. Free pop? Hah! You want free pop, you go see that Julia Roberts. Now there's a fine looking woman. Hey, you kids get off my lawn! Where's my TV Guide?
"Worthiness" of a job is the ratio of supply vs. demand.
It has nothing to do with how much money makes that job to the employer, because nobody ever cares about that.
Imagine that engineer position makes a -20,000 dollars hole in the company. Are you implying the engineer applying for that particular job shall pay the company $20,000 instead of being paid?
You seem not to understand basics of economics, sorry.
Catalin Braescu
Ofaly.com
Ooops :( Sorry about that, I guess I am getting stock.
Crawls safely back to c++... ;)
feh. stuff.
Bingo. Same here. You are right on.
My father-in-law gave me great advice back in 1999 prior to the .bomb regarding stock options.
"Stock Options are high-risk because you are not diversifying."
He recommended doing a good job on your job. Look for a better job if need/want to. And let this be the only risk you take with that company.
Take your risk capital and place focused investments in serval other companies.
The biggest danger with stock options is to _ever_ assume that they will be worth anything except as a fire starter. Manage expectations down. If, in the rare case, they hit, then fantastic. Cash in half and throw a small party.
You seem not to understand basics of economics, sorry.
You do not seems to understand that THERE IS MORE TO ECONOMICS THAN THE BASICS.
Instead of calling someone a moron because they aren't saying things that argee with what you learned in "Econ. for Dummies" THINK. Think about those rules you're treating as gospel and think about the examples I've given of them being totally off base.
Life is too short to proofread.
Yea my company dropped all compensation, including health benefits. At least I still have a job while many of my friends are either unemployed, working for peanuts or at another trade altogether. IT employment sucks nationally right now with employers feeling empowered and grabbing back everything they can while singing that they have to because of their bottom line. My company has posted the largest profit statement ever and still say that they have to cut to survive. Two faced talking is more common than ever in this industry.
Of course, and that's what an economist would call consumer (or producer) surplus. At any given price there are people who would have been willing to buy it at a higher price (it's worth more to them than what they are paying) and sellers who would be willing to sell for a lower price. Only those right on the margin are getting no more value than it is worth. Everyone else is getting more than that. And thats the crux of it. It's the marginal people that determine the prices.
Of course NO the model is "true". The truth is incredibly more complex contains a nearly infinite amount of data. Models are inherently a simplification of the complex. Good models aren't true, they are useful. The power of economic "laws" isn't that they are perfect, but that they are good predictors of real world behavior.
PS: Your joke about the economist is wrong/incomplete (he's walking with a finance guy, and you are missing the ending). As to the points about macroeconomics versus microeconomics and unemployment, I would add that your understanding is incomplete, but that comes with more education naturally.
----- Question authority, but not ours. Hate the man, but we're not him.
It's 100% vested immediately and matched 20% (lots of people use this as a way to increase a portion of their pay check). However, although I'm a software engineer only my division would be considered IT as the main company is a packaging company. It is a nice perk tho as our stock (BLL) keeps going up.
At my company, we have no stock options or profit sharing at all, and as far as I know that is not going to change in the near or far future. Raises are basically limited to a marginal amount above cost of living. We do have a 401k plan, but you have 0% vesting for the first two years, becoming fully vested only after 7 years of service. Health coverage is pretty good, however. All that said, why aren't we getting more here? I'm not sure, but it probably has to do with people at the top thinking, "I can hire a kid out of college, so why should I give YOU anything?" I don't think that most business people appreciate or acknowledge experience in the IT field.
Love sees no species.
Of course economists can't predict the future because they can't predict future events. If they could, they'd be Miss Cleo, not economists. What they CAN do is make predictions (if X then Y) that are fairly accurate ex ante, but not very accurate ex post.
----- Question authority, but not ours. Hate the man, but we're not him.
I ran across a horror story to avoid. Programmer gets options, IPO happens and value flys. FTC resticts ability to sell options for first year. IRS taxes new high value as income. Company goes BOOM before programmer can sell stocks. He is still on the hook for the taxes. With salary and benefits, 3 years work cost him $100 grand. I will be happy with my salary.
That should be "fairly accurate ex post, but not very accurate ex ante". I had them reversed in the parent post!!
----- Question authority, but not ours. Hate the man, but we're not him.
In typical slashdot fashion, my first post was slapped out quickly. I shouldn't have said I don't feel rich. I should have said I can't act rich (given my own priorities, and the tax bite). The main point I was trying to make was that stock options are the "two birds in the bush" whereas cash was the "bird in the hand".
I do realize I am blessed with my wealth (and health and family). I am quite happy with my lot in life, and appreciate my position relative to others. I have worked hard to get where I am, but I am not accelerating my efforts. I am not out grubbing for more money. I have enough for my needs.
I have had opportunities for even higher-paying jobs; with suit-wearing, traveling, and a life-sucking commutes. Working from home, being here when my kids come home from school is what I want.
I spend most of my "free cash flow" on things like education for my children, some goes to charity, and a lot goes toward the aforementioned retirement account. The single biggest expenditures in my budget are taxes.
This issue is a bit more complicated than you think.
Dude, if that's a month, she'd be better off setting up a day care center and looking after 10 kids a day. Because that will pay far better than $1400 a month. Plus when you have kids, the decision about her staying "home" will already be made.
People need to keep in mind the reason why stock Options were developed in the first place. They were not for the casual investor, nor for compensation purposes. The main purpose of options is leverage. They were designed to allow INVESTORS the ability to take equity positions with a lot more leverage. For pure equity, options give a higher degree of leverage than either short selling or buying on margin.
For all intensive purposes, options are insurance. They allow you to take a bet on a stock (added benefit is that you can bet on direction) and only have to outlay a small percentage relative to the actual value of the stock.
Yeah for sure i have. I currently have the option of buying in to the company. We get a dividen every year around feb. We also have a RSP program through the company that works very well. However the employee ownership is still the best thing. Since 1996 with an investment of $2000 i now have a account worth over $50,000. Not bad for a 21 year old.
-Pizentios
When I went to college, my dollar went further because so many services are subsidized there. You get cut rate rent, food, entertainment, library, internet, education etc. When leaving college, the cash flow in my life nearly tripled, but I didnt feel better off because, the cost of living tripled too.
We've all seen the stories about secretaries or customer service reps who worked for company X, receiving stock in lieu of some pay before said company hit it big and the peon was able to cash out with $1 million dollars or more. But let's face it - if you are a 75-100k per year developer and are granted options that could make you a millionaire in a few years, it's very, very, VERY unlikely to happen. Big money like that just doesn't roll down to the rank and file. Look at it this way - every person between you and the CEO's office has MORE options than you. Also, most of the higher ups will have better terms on their shares so they can cash out sooner. Owners, CEOs and Presidents will be able to sell giant blocks of shares immediately, while your options will vest over 5 years or something.
The fact is, unless you have the power to stack the deck in your favor, or someone with power is willing to stack the deck on your behalf, larger rewards are the result of taking larger risks. Since the value of options won't go any lower than zero, larger risk means a greater likelihood that the value will go to zero.
Personal story - The company I work for uses performance shares. If you do some stellar piece of work, you might be rewarded with shares that increase in value based on company performance and automatically vest and pay out after 2 years. I did some great work in 2000, was awarded shares my boss said could be worth $15,000. The timing proved to be dismal and the shares ended up being worth $1,900 at the end of 2002. That kind of pissed me off because it means I didn't get rewarded very much for work that even today saves them time and money. Of course, by 2002, everyone just shrugs their shoulders, says, "Well, we tried", and then asks, "What have you done for us lately?"
It is extremely unlikely that you will get rich working for someone else. I'm not talking about working somewhere for 30 years, saving diligently and retiring at age 55 with a multimillion dollar nest egg. I'm talking about giant payouts that put hundreds of thousands of dollars or more in the pockets of anyone below the level of senior management. A company that makes millionaires out of its employees has to go find new employees.
DD
"Can I finish? Can I finish?
It's a good thing my company doesn't give stock options. It would be more of a liability for the employees.
[I was a quant working at a major bank until leaving this year]
Putting a value on those options is itself a matter of some contention. Basically, employee stock options (ESO) nearly always have a strike K bigger than the current stock price S when they are granted. The value of the option lies in the fact that it is reasonably likely that at some later date, K>S.
So, a foolish measure of value would be intrinsic value: i.e. MAX(0, S-K). There is a formula called the Black-Scholes formula used for pricing options with only one allowable exercise date, and no other special features. That formula is quite inappropriate for pricing ESO, since ESO come with lots of other quirks, including vesting periods, stock holding periods, employee attrition, and (not least) lengthy time intervals in which they are exercisable.
Of course, to accountants even the BS formula is exotic. Rather than using a proper model (hinted at in FASB 123 with the moniker "binomial model") to price the options, accountants prefer to use BS, and then "adjust" the results as they see fit to account for the various features. The results of this are better than just using intrinsic value of course, but not by much.
I developed a model for the bank to use in pricing its ESO. It was reasonably correct, in the sense that it used the traditional approach of a trinomial tree to model the stochastic process followed by the stock price, along with code to account for the various quirks of our options. It still had manipulable inputs, such as volatility, but at least accountants would have to have justified their values.
Of course, internal politics killed the model in favor of the BS formula, and arbitrary accountant's adjustments. If that's what happened in a major bank, with the generally stated goal to transparently publish numbers, and with guys like me around to develop models like that...well, how much are you going to be able to trust the option expenses published by other companies?
I hope that FASB fixes this, and deprecates the use of the BS formula in inappropriate contexts.
The (main) reason ISOs are going away is that companies now have to account for them as an expense in earnings reports, instead of including an optional footnote, which used to be the case.
.com boom, until the bubble burst and all those options were worth jack, and institutional investors (largely pention funds, like the California Teacher's Union) lose their shorts too.
l
Everyone who was anyone (e.g. Bill G, Warren B) has known for years that not expensing ISO options was, a, uh, scam, sham, hoodwink.. and just generally dishonest, but a great way to inflate earnings.
The situation was roughly this: A offers a worker $100k, while B offers $90k + $10k options.. B says "Gee, with A I'd have a higher salary, but with B, I might get rich!".
B then gets the worker and reports only $90k of expense. Better yet, they don't have to pay out on those options for years, and the tax implications are different (feel free to comment on the taxes if you know the details). Even better, since they have "lower operating expense", they have higher earnings.. and so the value of the options increases, and now the company can trade options for salary more effectively, by offering $80k + $10k options for that same employee. And this just keeps going, with companies like Microsoft hiring grade-A developers for ~$50k during the
So in short, options are fine just so long as they're not abused! By groups of people who hold profit a higher value than anything else!
i.e. they're just another scam.
More details, including how Joe Lieberman ran point on the effort to keep the scam going, here:
http://freality.org/~pablo/essays/microsoft.htm
take it or leave it.
hi, I like pancakes -.-- -.-- --..
i have worked for a large (35k employees) tech company for 8 years. all of this time i have been getting (modest) stock options, and also dumping a significant portion of my paycheck into employee stock purchase plans.
at this point, all of the options are underwater, or close to it. they still give options, but at this point it sort of comes with a an embarassed little chuckle from my manager, like "this is the best we can do". i guess i don't have a point. options are a gamble, and a lot of us lost. easy come, easy go.
Face it. Somewhere between project management and engineer the stock options cut off. That's the way it's been for most of human history. It isn't a new phenomenum, just one which was briefly forgotten in 1999.
More interestingly is how dumping management jobs for low end programming jobs was all the rage in the nineties. Everyone kept saying how their management jobs sucked and how they loved programming. Now they're once again learning why they got out of programming in the first place.
Now, just like the 80's they're hopping jobs clinging to whatever hope that one day they might get snapped up for a big corporate management job so they can have stock options. Yes, the mundane administrative world had its benefits and it once again does.
Then they all work for crap companies. I've been happily riding my stocks (grants, + two types of options) through 10 years and at least 5 splits. They put siding and a roof on my house, bought me two cars, paid for some vacations, and the rest is sitting there until retirement. I *Love* options.
Again, how is it corporate welfare? How much are such visas actually sold for otherwise?
Don't blame Durga. I voted for Centauri.
Seriously what's the strike price and when can you take it? Usually they are least a year out, so in one year if Google is XXXXXX.....? what's the deal?
Starting 2005, however, MS employees can resume selling which means they can bail and look for a job elsewhere without losing their options. C'mon. Do you see anyone doing anything other than bailing?
Yes, Ballmer's making all kind of noise, but security and quality problems are starting to cut into MS' bottom line. OpenOffice.org is cutting into the applications profit. Linux is cutting into their server profit and just starting to edge into the desktop arena. Areas like embedded systems have MS listed as a no-show. If litigation and a patent war don't pull things up next year, MS is out of the way for good.
Beta is broken and the link to classic doesn't work. Stop wasting our time or there won't be anybody left here.
Nader makes the mistake of including much that is not welfare at all (such as tax breaks) as welfare.
"If visas were sold at auction, they'd easily generate $50K each"
However, you seem to be admitting that nothing like this is ever sold: it is always given away for free... to ANY immigrant. It is not welfare at all, in any way. It is just permitting freedom to people.
What is wrong with this immigration anyway? If there is anything wrong with the H1B visa system, it is that it is too restrictive.
Don't blame Durga. I voted for Centauri.
Nor do I. I've had many arguments with Randists. However, we diverge from the original question: How is it corporate welfare? Apparently, visas are never sold, so there is no money being given. What is wrong with letting the best workers get jobs?
Don't blame Durga. I voted for Centauri.
So you are talking about rights for individuals, that are unfairly restricted in other countries? Allowing freedom like this is not corporate welfare in any way.
"My basic argument is that the US government ought to price these immigration rights at a level that benefits the existing US citizenry "
The best price is free. The immigrants end up paying taxes, so you get the "benefit for the citizenry". They also do productive work: this builds America.
"For example, not all visa holders are here for peaceful reasons"
You have a good point on this. Screen out the terrorists. However, this is a straw-man argument on your side when you realize that this situation applies to the tiniest fraction of immigrants (and virtually none of the Mexicans and Indians you are railing against).
"Whoever sponsors a visa should purchase an insurance policy that covers damage done by the visa holder"
This would invite frivolous lawsuits in which someone who didn't do something would be sued for something someone else did. One way to avoid this is to not have visas be "sponsored": just allow them anyway.
"Billion in damages done by the 911 terrorist-that damage shouldn't be paid for by the general public"
These should be paid for by the terrorist organizitions themselves. They are the ones involved.
Don't blame Durga. I voted for Centauri.