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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.
Now that you have to expense the options, they actually cost the company bottom line.
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/
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... 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.
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.
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.
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.
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.
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.
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!
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.
"Does this mean my company will become publicly traded?"
/. Talk to an accountant before you sign ANYTHING.
Perhaps. They might be issuing non-registered securities as part of a private placement and providing a way for the employees to 'get in early.' Be VERY careful with this. (and good luck trying to sell any of it if your company does NOT go public. Talk to a lawyer to find out why).
If this is anything like my company, you are being issued 'common shares' while the real investors (and executives) are being issued 'preferred shares.' The differences can be HUGE (voting rights, dividends/lack of, etc...)
Obviously don't rely on
Toil is Stupid. Don't be Stupid.
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.
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.
Talk to your accountant and solicitor. If you don't have them, hire some and talk to them. Oh, and don't use the same accountant/solicitor that your company or its key shareholders use; they should tell you if that's the case, but check yourself to be sure.
Business plans typically are full of best case scenarios - I've written a few of them myself, and have occasionally been told to "gild the lily" a bit in order to get the people putting up the money (in my case, banks; in your case, it's you!) excited and wanting to jump on board.
If you're keen on staying at the company for a long time, have a lot of belief in the people running it, your company has some competitive advantage that sets it apart (no, that doesn't include "the quality of our people" since all your competitors will say the same thing about themselves) and the market for what you produce seems to be set for long term growth, by all means think seriously about investing some of your loot.
If, as may be the case, you don't think you're in a position to judge these things, try to find someone who can.
Alternately, you can treat it like betting on the lottery - invest some small amount from each pay cheque and hope like hell.
Even if you're convinced your company is gonna make it big, talk to solicitor / accountant anyway. You don't want to make $5m in one big payday in 10 years' time, then have it all chewed up in taxes...
Good luck.
I am a three-time loser in the stock-option arena; 1) early 80's "100,000 shares - at $10/share that's a million". Worthless. 2) Mid-late 80s - "hey you have 5% of the company stock!". Worthless. 3) "Recent" dot-bomb. 'nuff said. Worthless.
You are far better off negotiaing a fair wage, fully funding your IRA, 401K, SEP IRA, what-have-you. Hey, take a flyer once-in-a-while, if you can afford it, but remeber, it's like playing the lottery - "you can't lose if you don't play".
Paying quarterly taxes is a bitch, getting big fat gross checks is what everyone should get to realize how much we pay in taxes, if you pay your taxes without withholding. If you make even a little bit [I pay over 50K USD year in taxes and don't feel "rich", don't drive a BMW, don't vacation in exotic places...] you see how much "the rich" pay in taxes.
This issue is a bit more complicated than you think.
I went freelance and am doing better than I ever did at the companies and corporations I worked for in the past.
Ditto that. I kept losing every job I got because of incompetent management leading to the company going under. I finally started my own company, and make about twice what I did before, and I get to work from home where my wife and brand new baby boy are. Plus, I've kept at it about three times as long as my longest stint at employment.
I don't see why my success should depend so much on other people's abilities and decisions. That's the problem with stock options. Sure, they're nice if you work for M$ 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:
Here's my Canadian pay & deduction breakdown:
My net pay is around 69%, after taxes, company group health ($20/month), Canada Pension, Employment Insurance, and $6/paycheck for use of the weightroom. I put in $80/month towards my RRSP(Retirement fund-401K I think it is stateside), and the company puts in an additional $170/month.
The taxes they take off are pretty dead bang on so when tax time comes I owe or receive only a few dollars.
For medical needs not covered my government healthcare, my company's group health covers 95% of most stuff-most dental, optomotrists, chiropractors, prescriptions. That's for around $20/month-family plan is higher, around $60. Tooth caps they pay 60%. Full wages are payed for 6 months if you are unable to work, then 60% after that til you die.
I get 3 weeks paid vacation + 9 days paid holidays, + a onetime extra week of vacation my 5th year (next summer!). We have the week off between Xmas & newyears if we use up a couple of our vacation days.
Now this company is better than the rest I worked at previously. Others did not have a retirement play or group health, or they offered heath at much higher premiums.
After looking at it, I guess things aren't always greener south of the border, just warmer.
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.
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
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
They do exist.
:-)
I'm not making as much as you are (mid-fives with a bullet), but I have a decent amount of stock options at can't-lose strike price in a not-yet publicly traded but profitable IT company, and in less than a year and a half have gone from being a member of my team to being the manager of my team. My work environment sounds a lot like yours (free food is hit or miss, but we do have Starbucks for our coffee machine), and it's a pretty happy place.
I'm glad this one was hiring when I was looking
If you need money to live on, you shouldn't rely on the possibility of a cash bonus at the end of the year. A lot of companies have "guaranteed" bonuses of 5% or 10% of your salary. That is just another term for "deferred compensation" which helps the company because rather than paying that 5% or 10% to you over 12 months, they hold on to it and earn money on it and then give it to you. You are basically lending your company 5-10% of your salary interest free.
In the past few years bonuses at my company have sucked. 5 years ago a lot of the IT people (desktop support) were getting $15,000 bonuses on salaries of $40,000. Not bad for a 23 year-old until that bonus goes to $1000 a couple of years later.
I've learned to live on what I make and take any cash bonus as a gift and not to rely on it.
One thing options do is keep talent at companies. If you receive options that don't vest for 2 years and during that time the stock rises a lot, the opportunity cost of your leaving that company is pretty high.
Just some thoughts.
Mike
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.