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If You're Working For Stock, Read the Fine Print
cratermoon writes with a story of interest to anyone interested in working at a start-up, or compensated even partly in company stock: "Former Skype guy Yee Lee finds out that for people working at companies controlled by private equity firm Silver Lake, 'vested' doesn't mean what you think it means, and gets no money from the stock options he thought he could exercise. 'Skype spokesman Brian O'Shaughnessy said, "You've got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn't get that benefit."' Fortune also has the story." Some of the commentary on the confusing language surrounding the stock grant says the company was doing nothing out of the ordinary, but it seems that's because opaque language is the norm.
You are the employee and you cost money. The profit is already money and therefor that is what is protected. If you want to assure you will be protected, read what you sign. Everyone wants to keep their slice of the pie. Every slice costs money. And even worse, lawyers will be making a piece from each part of the action.
When the foot seeks the place of the head, the line is crossed. Know your place. Keep your place. Be a shoe.
It wouldn't be if you people would quit signing things you don't understand.
Warning: this article may contain humor, sarcasm, parody, and perhaps even irony. Read at your own risk.
"Confusing" language often means open to interpretation (ie, ambiguous). Anyone who thinks they may have a claim because the language in their contract can be read in multiple ways is probably well-advised to talk to a lawyer and sue.
Any guest worker system is indistinguishable from indentured servitude.
Just another way to screw the little man.
"We are just a war away from Amerikastan. When god vs god the undoing of man." Dave Mustaine
Next time read the article, this has nothing to do with the difference between stock options and stocks. It has everything to do with the difference in the stock option contracts between companies.
Specifically, the issue is that normally stock options once vested (ie: you can exercise them) do not expire after an employee leaves a company. In this case they did and the language of the contract did not at all make that clear.
I'd say at least half the companies I've received options from had clauses just like this. It may not be par for the course with private venture-funded companies, but it sure is close.
You should always assume that options or common shares of private companies are going to be worthless to you. Never include them in your compensation evaluation. Even if you are in a company that lets you keep options without buyback if you leave, you still have common stock and they can play games and absorb the equity event's value entirely or almost entirely in the preferred shares. Or they can recapitalize the company prior to acquisition, re-issue stock to existing employees and investors and cut the rest out.
Making money off an equity event in a private company is like winning the lottery. Pretty nice if it happens, but you're not being rational about it if you think you're going to win just because you played.
Why am I supposed to feel sorry for someone who failed to read and understand the terms of the contract that he signed?
Empathy block - check.
Assumption that all humans are perfect rational entities - check.
Supremacy of the business contract - check.
Internet Libertarian Warrior mode engaged!
I think there's some old quote along the lines of the guy who owns 20% of the company owns exacty as much as the guy who owns 80% wants him to.
Options without an utterly ironclad shareholders agreement are worth exactly zero.
Even with one they're barely worth more.
I stopped including stock options into what I consider adequate compensation for a job a long time ago. I look at the dollar salary or hourly contractor pay as the only factor in judging compensation. Stock options are a nice to have, but in the end I never count on them paying off. I've been around when stocks fall below the price they were when I started somewhere (companies can gain market share but fickle markets do funny things... e.g. they've maxed out the market so can't grow any more but even though they are making the same profit year over year we don't think they are worth as much since they can't grow as fast as before.... etc etc etc) or when companies want to put clauses like this into the package. So I don't let them wow me with phrases like, "but we offer great stock options" when talking to the recruiters. I prefer the "show me the money" conversation. Now-a-days I believe "stock options" are just a way to pay you less and to try to rope the naive into staying at shitty companies.
-- I ignore anonymous replies to my comments and postings.
Just because some companies offer options contracts that work in the manner you expect does not mean that every company does.
Because redefining commonly understood words - and making you hunt down those definitions with no reason to suspect they've changed - Counts as nothing short of a "lucky he didn't go postal" level of sleaziness.
I want to pay you a million dollars a year to work for me. See my non-attached 300 pages of fine print for the definition of "dollar".
When you exercise options, you have a tax obligation between your strike price and the current price of the company. So if the option is at $1/share and the current price is $100 a share, he owes tax on $99 a share. Now, if he has a side agreement that he has to sell them at exercise price, he has to sell them at $1 a share, enabling him to take a loss as soon as the actual sale goes through.
This sort of confusion was really big during the .com boom/bust. People would exercise options to get a lot of stock when the price was high but then they *wouldn't* sell them. They would end up holding them and the company might go bust or lose 90% of its value. They would have a massive tax burden and the underlying stock would be worthless to cover it.
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I worked for a company that used another means to force employees to stay. They paid 25% of your income as bonus. Every quarter, your bonus was as regular as clockwork, except they would vary it by a dollar or two, probably because it would be legally considered part of the paycheck if they paid you the same amount. The hook was that they paid it once a quarter. This meant you couldn't count it as income, so you couldn't qualify for the home loans, or other things that you might have if it was all salary. Also, since it was bonus, apparently most lamebrain accountants think that means you need to withhold taxes at the single white rich dude percentage, which means that 40% of the dollars that you earn on January 1st of this year won't be available for your use for another 18 months. But the final coffin nail was that if you quit, at any time, you could guarantee that they weren't going to pay you your bonus for the quarter, so at least for your last quarter you ended up working for 75% of industry standard wage.
The owners of the company sold out to a large corporation for a huge sum of money, and didn't bother to negotiate any kind of retention bonuses for the employees. In fact, everyone had to redo the paperwork as if they were just starting with a new company, vested profit sharing was lost, vacation days were set back to zero. The company was built on the labor of hundreds of employees who put in many, many hours of overtime with the promise of being rewarded with a piece of the pie when the company became profitable, but it was all a lie.
My advice, tell them thank you for the generous stock options and other benefits, value them at zero (because that is what they are worth) and ask for whatever compensation you are desiring all in salary.
If you are not allowed to question your government then the government has answered your question.