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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
I worked for a startup, was given stock options, then the company went public. After about a month my options were worth about $1M on paper but I couldn't exercise them because that would have diluted the company founder's share value as they busily unloaded their shares. In the end I wrote a check for $24k to the IRS and ended up with nearly worthless options while the company founders cashed in and took their millions off to another startup to repeat the process.
If you're working for stock options you're going to get screwed.
It's really not that complicated to know what is the right thing to do here. Harsh terms in a contract, fine. The person you're negotiating with can take it or leave it. Opaque and intentionally misleading terms, not okay.
To repeat: nothing wrong with both parties in a transaction negotiating vigorously on their own behalf. When the one party, which has the support of teams of lawyers skilled in writing opaque legal sourcecode that no ordinary person can read, uses that to their advantage, it may be legal, but it's wrong.
Karma: pi (Mostly due to circular reasoning in posts).
I was in a startup, had a ton of stock options. CEO sold the company, but just before doing so... he granted himself a million options at a penny strike price. This diluted the shares so that anyone else made $0 because they were worth less than the strike price everyone else had. This was all after working there for years and putting in a lot of OT, and creating a product that gave the company real value it would not have had otherwise.
True story. I opt for cash now, and will take options if they give them but do not consider them as part of my compensation no matter how much my bosses try to give them to me in lieu of increases.
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.
The issue seems to be not that it was an option but that there was a hidden clause that allowed the company basically to renege on the option, buying it back at the purchase price. Read TFA.
-=Maggie Leber=-
Here's the letter the OP received from skype:
http://framethink.files.wordpress.com/2011/06/lee2.pdf
Clearly Lee had 90 days to exercise after his termination. This is the same across most companies. He claims that this arrangement is some kind of Skype trap, but that's incorrect. Every company I've worked at with options lets you vest options at a standard rate which gives you the right to exercise those options. If you leave the company, it's pretty standard for a 90 day window to exercise. Lee is just pissed that he didn't know that.
The only mention that the company had the right to buy if he left in less than five years came in a single sentence toward the end of the document that referred him to yet another document, which he never bothered to read.
For someone who works the startup circuit jumping from job to job every year, you would think that reading your employment contract would be a no brainer.
"I would have never gone to work there had I known," [Lee] says.
In other words, he never had any intention of staying with the company. He was only there for the minimum amount of time necessary for some options to vest, then he planned to cash in any windfall and move on to the next startup.
Sorry, but I have no sympathy for him.
'The tyrant will always find pretext for his tyranny.' - Aesop's Fables
You're a septic, right?
If I had an Ass, I'd call it Fanny Bottom, then I could slap my Ass; Fanny Bottom, on the Arse.
Next time read the article
Now, now, let's not get too carried away.
#DeleteChrome
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.
Perhaps you should read the article again as well. The options did not expire. Lee was eligible to purchase them if he wanted to. The issue was that the contract also included a clause that would let the company buy back the stock purchased using those options at the exercise price if they so desired. The company indicated in a letter to Lee that they would do so. The net effect would be $0 gained for Lee and possible tax implications where he might even lose money if he were to move forward.
'The tyrant will always find pretext for his tyranny.' - Aesop's Fables
No, according to TFA the terms of the options were spelled out in a document that the guy had not read. Why am I supposed to feel sorry for someone who failed to read and understand the terms of the contract that he signed? Just because some companies offer options contracts that work in the manner you expect does not mean that every company does.
TFS makes it seem as though this guy was supposed to receive stock but did not. That is not true. The guy received options, under specific terms which he neglected to read.
Palm trees and 8
You RTFA; he didn't bother to read the agreement. He received options under particular terms; why should we feel sorry that he didn't read those terms before agreeing to them?
Palm trees and 8
If that's his attitude, perhaps his former employees should kill him and steal his possessions. If "winning" is all that really matters, that is.
Huh? I thought the whole stock option craze died out with the tech boom/bust. When I was at Intel, they used to issue options, but they stopped when that new tax law came out regarding options, and instead they starting issuing "restricted stock units", which was basically actual shares of stock, with strings attached (they don't vest until you've been there two years after being awarded them).
I don't know what other companies have been doing, but I had assumed that everyone gave up on the stock option silliness, because really it's stupid and with the economy in the toilet, you're not likely to get anything out of them (unlike the 90s).
After my not-so-great experience at Intel (I never did get much out of those stupid stock units or options), I've never worked for stock again. I want cold, hard cash. If some company is too cheap to pay real money, then I'll move on to someone that does. If they want to give them to me anyway, I'll take them, but I won't count them when I'm comparing compensation packages because to me, they're about as valuable as a lottery ticket (or really even less; at least a winning lottery ticket will make you a millionaire most likely, but stock units/options probably won't make you more than $100k total in the very best-case scenario. And I haven't seen any companies offering stock any more either, so I haven't even had a chance to put this into play.
FUCK THEM BACK.
I don't see any mention of the Wired article "Downgrading Skype and Silver Lake to ‘Evil’" in the comments, so here it is.
I don't understand the tax implications.
1. Lee decides to exercise the options to buy Z shares of the stock at price W dollars per share.
2. He sells the shares on the market for $X his capital gain is now Z * ($X - $W) //he would only do this if X > W
3. He leaves the company and in doing so becomes obliged to sell Z shares back to the company at $W.
4. To do so he buys Z shares at $Y where Y > W
Y W; they could acquire more treasury stock on the market for the same money. So we can safely assume Y > W, his loss will be Z * ($Y - $W). His final gain or loss is then Z * (($X - $W) - ($Y - $W)).
We know that X > W, so the way I see it depending on if X > Y or not he either has a smaller gain than before or now has a loss, in both cases the taxes owed would be reduced.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
Nothing odd about the exercise & repurchase part, except for the price of repurchase. After termination and exercise, Lee holds stock, that stock has no awareness of the history of the options it came from. The company repurchases the stock by force at an arbitrary price, but this transaction has to be at the then current valuation. If the company has an offer from Microsoft, or even a term sheet, it cannot pretend that the valuation is as it was when the options were issued.
Someone should verify that the company paid appropriate taxes; after all they got his shares which were clearly worth millions for pennies: they owe taxes.
There's not really any questions that they robbed him, my expectation is that he would prevail in court.
The documentary sleaziness (if it even exists and this is not 100% fraud) is that the abnormal repurchase price is stated in another document.
Something tells me, if I were to ask you to read that document, you would not understand it yourself. In all likelihood, your lawyer would not have advised you about the possible implications of that clause since it is simply something that is not done.
People working for me have left to go to Google several times in the past, we had one black week once where 6 guys left within days of each other, all heading for Google. Not all of them are with that company anymore, and I have heard tell of the offers they received. $120k in stock options granted the first day, with a relatively short vesting period (I think it was about a year, but can't remember exactly).
This is the way things are supposed to work in Silicon Valley. I am never keen on options, I was granted a good number of them in the 90s and saw a lot of value vanish overnight when the bubble burst. But you should be able to lose value based on performance of the market, but an option is an option. It does not make sense that you are contributing to the growth of the company based on this compensation, and that it can be stripped from you.
Buyback clauses like this are almost certainly non-enforceable, especially since the employee has to pay taxes on the options during the time of his / her employment (at least in California). It would be like saying that the company has the right to take back your paycheck, they are measured as compensation and should rightfully belong to the employee without additional considerations.
I have a strong feeling this is not going to stand and we will be hearing about this matter for a long time.
I smell a rat. A week ago another skype deal article was posted where those who had stock options were all canned 1 min before deal, so the private IPO firm could steal all the cash from the executives. All the posts here are for the company saying this guy is a moron. I have to say moderators forget that the contract was made in bad faith. Basically they work under a promise they will make a fortune, while the equity firm puts as much legal terms to lie and cheat there way out. I hate laywers greatly, but I hope the get sued.
http://saveie6.com/
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.
Are the only two things I would work for on top of salary.
Stocks are worthless.
-Hack
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
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!
Spot on :-)
If I had an Ass, I'd call it Fanny Bottom, then I could slap my Ass; Fanny Bottom, on the Arse.
Umm, what part of "I worked for a startup, was given stock options" did you not understand? The FOUNDERS did exactly what any normal company would do - hire people to do WORK for COMPENSATION. Of which part of that was apparently detrimental stock options - stock options that are meant to reward the WORKERS of THEIR hard work building the company. I've worked both sides of the "My company" and "someone else's company" - the concept of ownership and compensation really isn't that hard to understand.
That's an interesting point. Are any of these companies getting huge gains on their stocks, though? (I don't know, I don't pay attention to that stuff much any more.)
Either way, the whole thing left me with a bad taste in my mouth. I think Yee Lee probably agrees with me too after his recent experience with Skype.
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 have a suspicion that if this was about computers instead of stock options; that someone suddenly realized that a computer solution he bought worked differently than he had expected, because he hadn't checked details beforehand. Then many here would not respond differently.
duh.. and a "not" too much in last sentence killed the whole point
The company in question is Skype, which just entered into an agreement to be bought out by Microsoft for $8.4 billion - something over three times the market's prior evaluation of the company's market value. It's reasonable to assume that the options did increase in value if they were true options, which they weren't. The right to buy something at a set price sometime in the future, when bundled with a requirement that you sell it at that price, is not an options contract in the normal sense. It has no value at all.
Help stamp out iliturcy.
The article isn't about feeling sorry for him. It's about being aware that this has happened so that others potentially impacted by similar terms can evaluate their positions. Something like a sign on the beach that reads "Some swimmers recently eaten by sharks."
Help stamp out iliturcy.
When I bought my house, I read through everything, and there were three places where I requested changes to the contracts. In each case, they made the change on the spot. When I was hired for one job, I said the non-compete agreement was insane, pointed out where, and the boss tore it up on the spot. Once I was hired, he asked me to help re-write it to something more reasonable. If you don't read before signing, you're still responsible.
It seems a large number of people here think that it is, though. Idiocy, or trolls. Do people really have so little sympathy? Contracts are intended to be a fair, bindings agreement between two parties. There are countless examples of unfair or weasel worded contracts failing in court, but apparently that would be news to some. What about loan sharks? What if someone snuck in a paragraph of mind bending legalize which amounted to "we can kill you"?
Oh, of course, they should have read the contract, and in case it was too confusing, they should have hired a really expensive lawyer to read it for them.
Bullshit. While I have diminished sympathy for Lee for not double and triple checking his termination clause, I do not have none. I also suspect, as pointed out in another comment here, that Skype should be liable for a lot of taxes by effectively buying back his options for nothing rather than their grant price. This probably still represents a net win for Skype, but at least then it's not "free" for them to exercise this clause.
In any case, it's still a particularly nasty thing for Skype to have done. Options generally have a "30 day" clause so you're not screwed in case of termination. This is supposed to add potential value to the options: you don't constantly run the risk of losing them all at the whim of the company. Skype effectively has a termination clause which takes away all your options any time they want. The difference is huge: I currently work on the assumption that my options are "safe" and I don't have to worry about them vs termination. My employer has written their options clauses to effectively say "we cannot be a dick - we are bound to allow you a grace period". Skype didn't. Their employees must treat options as directly bound to their employment, and if they're working under an "at will" contract, they can be gone in an instant. Skype took away a vast amount of value in their options due to the buy-back clause.
Companies should of course be free to offer compensation incentives on terms that fit their business needs. It's best for everyone if the incentives are expressed in plain language up front, so nobody feels tricked or taken advantage of later.
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.
No, it's a complete sham. However, now that we've seen how the Skype employees have been screwed over, if you're looking for a job and get an offer that includes some options, how do you know it doesn't have the same clause in small print somewhere? I don't know about everyone else, but I am NOT going to read through 50+ pages of legalese and hire an attorney to read it all, every time some companies offers me a job. I'm just going to assume the options are worthless, and probably in my mind assign them negative value and view the company as one that would rather trick employees with possibly-worthless junk rather than just offer a better salary. If a company is like that with your employment contract, they're probably not all that great a place to work every day either.
When you leave a company, you have to excersize your options. That is, you have to BUY the stock in the company. If you don't do that, the options are forefit.
This is pretty common knowledge, and EVERY company does this. After all, the whole point of options is to incentivize employees, not to make employees rich and have them quit.
It amazes me that people will never read through important documents like stock option agreements before signing them.
No dog ever accepted company stock as a reward.
Dogs will only accept tangible rewards of immediate value (preferably something they can eat)
Humans should learn from the wisdom of their canine friends
If your children ever found out how lame you are, they'd murder you in your sleep
I would say it is the norm for them to expire. Non-expiring options are rare.
Usually, you have 6 months after you leave the company to make your buying decision.
But this article is actually about a repurchase agreement, not expiration.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
My stock agreement at my current company was trivial to understand. It took me about 2 hours to read. If you are investing thousands of dollars in stock options over salary, you should either understand the agreement, or pay a lawyer to explain it to you. The cost to do this with a lawyer should be <$1000.
If you are going to work for a company with an incomprehensible stock agreement ... maybe it is time to reconsider.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
If you think hiring a lawyer is too expensive, try not hiring a lawyer.
The FOUNDERS did exactly what their title says, they founded the company. Just because you were, frankly, too stupid to profit from THEIR hard work doesn't mean that they are at fault. Fuck you idiot statists who want to drag down all the smartest people around you because you want money for doing none of the real work needed to build a company. *THIS* is why I am a Libertarian, because fucking assholes like YOU want to live off MY hard work.
Did someone hold a gun to the "FOUNDERS" head and make them offer him stock options? I'm going to assume that they didn't.
You'll also note that the OP didn't suggest that the "FOUNDERS" had any moral obligation to him. He merely observed that it turned out to be a poor deal for him. He's quite entitled to do that.
It's funny how many people assume that because someone is free to accept or reject the terms of a deal (and does so) that they have no moral right to criticise that deal or the party who offered it. Wrong.
Assuming that you're not simply trolling, I'm really not sure what point you're trying to make here.
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
Depending on jurisdiction, there may be laws that make such fine print unenforcable. In Germany, for instance, surprising and unusual clauses in "standard contracts" are always in danger of being thrown out by the courts.
So the former Skype employees might want to talk to a lawyer...
C - the footgun of programming languages
Define hidden. He acknowledges it was in the contract. Do people seriously not take the 2 hours it will take to read their employment contracts before embarking on a year+ of work?
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
I worked for a (private) company many years ago that offered stock options with a very low strike price. I was employee number 5 and I received approximately 2% of the company in stock options, with the understanding that I would work at less than typical market salary in exchange. The company did well (the employees were motivated by their options to work hard!) and after 4 years had grown to over 100 employees. The early employees had all stayed with the company the entire time and when news of a sale cropped up we were all excited (newer employees obviously had less shares). Days before the sale closed, the owner and a "senior" VP received massive stock options and essentially diluted the value of all the employee stock options by almost 100-fold. My shares ended up being worth less than the strike price. Needless to say I quit immediately. The sad part is, even though I didn't have to pay any taxes since I never exercised my options, I had essentially given the company more than $200k by working for less than market rate for four years.
I will never consider stock options as part of an employment package again.
Why not instead of working for cash, work only for stock, eg common shares. The company has to buy the shares back from the market to give them to you.
I've worked for one company with restricted stock options. I sold my stock below the value it was "worth" when I got them (it's now worth 30% more, who gives a care.) I was able to make that money back in one day with the proceeds of the sale by buying BofA for a few hours.
The point is, if the company is worthless, then eventually all the public stock will be purchased back by the company and it will be worth more in the end, or the only shareholders will be employees. If the company is actually of value, then the employees will have no incentive to sell the stock, and the liquidity in the market will come entirely from the automated trading blackboxes at Citigroup, JPM and Goldman Sachs that will scoop up any shares sold within one second of hitting the market.
But seriously, paying people by the hour to not care about the company is detrimental. If they won't accept stock, then they shouldn't be hired. Everyone who works for a company should have a vested interest in the company's success, and one way of doing that is by giving them stock in the company. If I ran a publicly traded company, I would require everyone to work for 1$ and only pay them the equivalent in non-voting stock as their salary, and additional voting shares if they are available for each quarter they meet performance metrics.
Outsourcing services has been nothing short of detrimental to companies operating in the USA. It ruins customer goodwill when outsourcing customer support, and by putting a communications barrier between the head office and the outsourcer, you don't know how bad your company is being tarnished by the outsourcer. Manufacturing outsourcing is a bit different, all things considered, whoever has the least amount of taxes and bureaucracy becomes the most attractive place to manufacture. For office jobs, no such thing applies, as it's just as easy to have everyone work from home and that costs much less than outsourcing. Outsourcing has it's place (generally anything that is not a business function, eg janitorial, food preparation(non-restaurant), and shipping) but I believe there's been some incredible destruction of job opportunities by doing so. In the 50's it was within reason that you could get your foot in the door by taking the jobs that nobody really wants and work up. Nowadays everyone wants you to waste 4 years at college and skip the jobs nobody want (or have illegal immigrants do it.)
You worked for Intel, a giant, well established company. Stock is much more often given out at startups where they have a very limited cash budget, and significant upside potential for the stock. I'm at a former startup now (former in the sense of now we are pretty big, headed for fortune 500 territory), I got in early enough to get a pretty significant stock grant, and there is basically no doubt that we're going public at this point, the only question is when can we get the most out of the market.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
These two statements do not seem to agree with each other.
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".
Really? You consider 2 hours for an agreement that is worth tens of thousands of dollars non-trivial?
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
....Lawyers suck. With that said, if you sign a contract of any kind without passing it by a lawyer, you're being an idiot. I didn't RTFA so I have no clue if this individual did this or not, but this is common sense. Don't trust anyone else to look out for your own best interest, ever.
You forget! Here on Slashdot, we all read every page of every 400-page contract we have to sign before we sign it. We also have perfect credit, no consumer debt, and have sex with supermodels.
According to this, Google might have started building a Skype alternative a year ago.
May 18, 2010
Google announced today that it has made a cash offer to acquire Global IP Solutions (GIPS).
A leader in the real-time VoIP processing space for both voice and video, GIPS doesn’t have any consumer-facing products; instead, it provides services that work on the backend for products like Yahoo! Messenger, Citrix and WebEx.
This is an interesting acquisition for Google, who already has a number of consumer products that could benefit from GIPS technologies. Not only does GIPS provide voice processing for VoIP calls that could potentially improve gTalk and Google Voice, GIPS also has a large focus on real-time video transmissions, both on the client and mobile side.
Our first thought when looking at this announcement was that Google could provide some really formidable competition to Skype.
http://mashable.com/2010/05/18/google-acquires-global-ip-solutions/
"It is not enough to succeed. Others must fail." - Gore Vidal
I really doubt that forced repurchase clause is even remotely legal. The whole point is for the vesting period to be the carrot, and not anything else. If shares had vested and he elected to exercise the options (within typically 90 days of employment if terminated, for any vested options), then he owns the shares free and clear and Skype can't steal them back. Unvested shares are typically lost, and that is standard.
Contracts often have a right of first refusal, that is if an employee owns stock on a company which has not gone public yet and that employee wishes to sell those shares to another person in a private transaction, the company has a right to purchase those shares at that same price first.
But I've never heard of a company being allowed to force a shareholder to sell shares back to the company at a price determined by the company. I really doubt that would stand up in court, because prior to going public it is the company itself that sets the fair market value for the shares (not the public market). It would be ripe for fraud otherwise.
I think this person has a real case if they decide to go to court. Skype should never have put such a clause in their employment contract, I don't know what they hell they were thinking.
-Matt
Meh, sounds like you have a bee in your bonnet you were just looking for an opportunity to vent on. The OP said nothing that would suggest the involvement of the state, only that he thought it was a crap deal.
Your only apparent reason for labelling him "statist" appears to be that he didn't accord the founders of the business the appropriate backside-licking respect. Nothing about libertarianism requires him to do that. They ran a company for their own self-interested reasons, he offered his services for (presumably) his own self-interested reasons, they employed him for their own self-interested reasons (doubt they were a charity, they wouldn't have employed him if they hadn't thought he was worth more to the business than he cost). He thought the deal was crap in retrospect. Sounds pretty free to me.
If you want to worship those people, that's your choice, just don't kid yourself that it's an integral part of libertarianism nor that anyone who doesn't do it is automatically a "statist".
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
In the early days of Apple Computer, many engineers employed from 1977-1979 had greatly disparate stock grants. Many had options granted at .02 a share, some at $2 a share, some grants had undergone multiple 2-1 and 4-1 splits.. A few weeks before Apple went public in 1980, Woz stepped in and personally offered to sell a quarter of a million shares of his own Rule 144 founder's stock to any of the engineers at Bandley III for $7 a share. It went public at $22 a share. In other words, Woz willingly gave away several million dollars because he wanted the engineers to get a fairer shake among their options. Why is it I never hear about this in the history of Apple?
How do I know this? I was the engineer who volunteered to help Woz collect the $1,000,000 from fellow engineers and transfer it and the Rule 144 forms to Apple Corporate finance for the stock transfer book back in the fall of 1980.
Compared to Steve Jobs, who I was told reneged on a promise of a stock grant to an early tech support person at Apple and explained that fact he forgot after the IPO as "the [engineer] should have asked again." The two-digit tech support guy never did get his promised stock. Not very classy, Steve.
Woz is even a more generous person that is commonly known.
He really did it for the lulz; I have great respect for him even after 30 years.
(Nor do I hear about his exploits of taking his own jet (a Mooney, I think) to LA to make VHS and Betamax copies from the Empire Strikes back theater master reels a day before its release. He didn't do it for money, he did it just to set up a duplication station in Bandley III so that anyone who wanted to watch the Empire before it was released could. Sorry RIAA guys, statute of limitations for copyright infringement has expired for this escapade. LOL)
If it takes you two hours to read, it's not "trivial". If it were "trivial" it would take five or ten minutes.
I don't necessarily agree with read the fine print (personally).
My counter proposal: see a legal (or financial adviser), and have professionals read the fine print for you, if you are signing a contract, or taking conditional compensation of any sort, not just stock.
My reason for this counter proposal, is the average person on the street may not be sufficiently equipped to fully understand all implications of the fine print.
It's complicated enough that you may need a legal review of your contract by a lawyer to tell you what the fine print actually means.
And you need a review to help determine/have explained to you the possible/probable tax consequences of signing the deal also, so you can make an informed decision. For example, based on what kind of options you are receiving, based on the contract, do these count as qualified stock options, or are they going to be treated by the gov't as non-qualified -- do you have an immediate salary/employee tax liability when you receive the options, or do you have the employee tax and social security liabilities for the options when you exercise them?
Etc. All questions that have to be answered by your financial advisers working for you, and ultimately effect what income you have to report.
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 question whether many of you using that word have any idea what it means. At least in this case, it's irrelevant. The gov't was only tangentially involved in this, in writing the laws that the legal system goes by. Kneejerk slander, ad hominems, preaching to the choir, yada yada yada. You're proud of this behaviour? Why?
Have you spent any time on reason.org? Read any Rothbard or Hayek or von Mises? Can you prove you understand any of them? I doubt it. I suspect you've heard a little about Ayn Rand and are attributing her more controversial stuff to anything you think smells of libertarians. News: she vehemently disagreed with libertarian philosophy and their goals.
Or does [Ll]ibertarian == "Tea Party" in your world view? If so, go back to reading comprehension class for a refresher. Please.
Thank goodness an idea is not responsible for those who hold it.
"Tongue tied and twisted, just an Earth bound misfit
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!
Jump to conclusions in reply to try to be snarky Check
Unfortunately, contracts and contract law are what matters here. If he was that concerned about his options and didn't have an attorney check his contract before he left, then it is hard to feel very sorry for him.
I'm a consultant - I convert gibberish into cash-flow.
Don't ever work for stock options. It's okay to get some as a bonus as part of a compensation package, but basically you don't have control over options and no rights. If you work for equity in lieu of a wage, then you want stock, not options. If you leave the company there are a million ways for them to screw you over, leaving you without compensation for the months or years you invested. You own nothing. It's just plain idiotic to accept stock options as your primary compensation. (And founders who offer it are either clueless or try to rip you off. Regardless, RUN don't walk.)
Define hidden.
A Stock Options granted to him and other investment of two years after the Party to which do not affect the terms and all of the Company, whether known or subsidiary (or such Warrants which the Stock, a special price, and conditions, stipulations, promises and subject matter in law or other mediums used herein shall have the Stock is for reasonable safety to proceed in full, in substance) may require each such Warrant Certificate shall be no later due from any photographic "transparencies", photocopies, or political subdivision thereof, this User Agreement. No PARTNERSHIP: This Agreement. No further state Therefore, no consent of release of the receipt of cancellation, however, should not directly to the advance, Licensor acquire his own expense. This is a hidden clause that screws the employee. 6. Deferral accounts, if such Warrant Agreement and rules and conditions on such Warrants remaining after the purchase an emergency shall authenticate and payment does not read it, chose not be separately transferable [before , (the "Prospectus"), and failing such, this Section 6. Licensee regarding any of the exercise [and Assignment] to continued employment OR Warrant Agent and the Company recommended by you, supersedes all such original issuance from any other PROVISIONS of interest in, any time thereafter. Licensor pursuant to pay the Committee may not be determined by the Board may be. Our sole discretion. The wholesale price less than one (1) the Board or where authorized under any time the reasonably estimated cost to constitute and XYZ Company, be issued, the Participant's Stock options. |3a) Licensee agrees that record were deceased, and representations contained herein set forth and highly qualified personnel through the terms and Demands to benefit of a superseding cause definitive Warrant certificates or as set forth herein called the purchase Warrant Certificates. (c) In New York.
when you exercise an option, you have two tax implications. first, on some types of options, you have to pay ordinary income tax on the paper gain between the strike and the market price when you exercise your options. This is not always true, and occurs when your company gets to take a tax deduction on this stock as compensation it paid. So you coudl theoretically exercise stock with a strike fo 10$, when the price is 20$, and owe 10 dollars of tax on ordinary income which will be taxed at 28 or 35 or 39%, waht ever your marginal rate is. Then if the stock price falls below 10$*(1+margial tax rate) you will lose money, net, on this as you can't cover your exercise and the tax you owed.
Another possibility is you don't owe income tax on teh difference, just capital gains tax between the strike and your sale price. again, you risk losing lots if the stock price then falls below the strike, but you can slowly amortize this loss away again yoru ordinary income (or quickly against other investment income).
make sense?
It's absurd to think that you can find all of the loopholes in things like options contracts, and this is a prime example. Of course you trust that your employer will take care of you, or else the options are no kind of incentive at all. Firms like Silver Lake can exploit that trust for short term gain, but it's obviously destructive in the long term. They're being parasites on the general Valley ecosystem.
There's little legal remedy for this, but there is social censure. To that end, here are the companies that Silver Lake is involved with, as listed on their web site:
Allyes, Ameritrade, Avago, Avaya, Business Objects, Flextronics, Gartner, Gerson Lehrman Group, Instinet, Intelsat, Interactive Data Corporation, IPC Systems, MCI, Mercury Payment Systems, MultiPlan, the NASDAQ OMX Group, NetScout, Nobao Renewable Energy, NXP, Sabre Holdings, Seagate Technology, Serena Software, Skype, Spreadtrum Communications, SunGard Data Systems, Thomson, UGS, and Vantage Data Centers.
There are a lot of big names here. If you work for any of these, think carefully about your position. One of your employers has just demonstrated bad faith. If they screwed Bill Lee and the fired Skype execs, they can screw you.
PR like this is fatal. The general populace may care little, but the tech world is small. Silver Lake should probably change their name and re-organize.
These are employee stock options, and remain valid only as long as you are an employee. Once you resign or you are fired, you get a grace period to exercise them. Vested stock options means, you can exercise them before the expiry date or within 90 days of resigning from the company, whichever is earlier. I had such options in my company, I stuck with the company, my friends and colleagues left. They were told they had 90 days to exercise. I knew it long back that was the deal. So I did not have to read the fine print. It was common knowledge.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
Do you really want to live in a world where every time HR hands you something to sign you have to pay a contract lawyer $2000 dollars to review it first? Of course we're heading down that road already with EULAs . . .
Paying a contract lawyer for 2 hours could easily cost you more than $1000 . . .
You don't need that good a lawyer. There are plenty, even in the expensive SF bay area who will do this at $300/hr.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
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.
It's not unusual to lose vested but unpurchased shares after you leave the company-- I had a deal like that from a small startup I worked at long before the internet hit. They did allow me to purchase all my vested shares (not many shares-- I was low on the totem pole and only there for a couple years) for the pennies that they were offered at, and then I held them for a few years as unregistered shares until the company eventually went public. they did end up being worth enough to compensate for the lower salaries that they paid for the first year I was there.
What's unusual in this case is that the company added a "nyeah nyeah, didn't really mean it" clause where they could by them back at the vesting price, leaving people who worked for stock options early on out in the cold.
Many comments to this post say "You should have read the fine print, tough luck." Or another variation: "I'd never trust a corporation enough to work for shares." Or "When you left the company you should have expected that this would happen."
Why do we as people allow big corporations with large legal staff to just add "gotcha" clauses into their contracts? In theory, this country and this law system are supposed to be tools to ensure that everyone participates on a level playing field. Why can't both sides of people who signed a contract deserve equal justice? Why should it always be the huge corporation who gets to leverage their advantage in a contract?
It's not a good idea to constantly blame individual people for their failure to anticipate these problems in advance. Do we really want to create a "gotcha" society where people who fail to read every single line of fine print can get horrendously screwed at the last minute? Should each corporation be allowed to insert a "gotcha" clause into their contract to reclaim everything they promised? How about if GM had a gotcha clause that allowed them to repossess cars if they were ever forced to declare bankruptcy?
Gotcha clauses in contracts aren't nice and they really shouldn't be legal. Contracts between a company that handles hundreds of similar contracts each year and an employee that does one contract in a lifetime aren't likely to be fair unless there are some rules in place. I am okay with capitalism having rules.
Well, you got 2 out of 4 correct.
I don't know anyone who is a geek or nerd who has no't been shafted or knew someone who was shafted because they didn't pay attention to a contract.
I do read every 400 page contract before signing it, and I do have sex with supermodels. I just wish they weren't made out of clay.
Aren't you just defending fraud?
Where did you get that from? The guy said it referred to a term in a document *he didn't bother to read*. If you sign any contract as important as an options grant without bothering to even read the damn thing you deserve to get fucked. It's not like this was some obscure term buried in some EULA.
We read every 400-page contract, but we don't RTFA.
In all likelihood, your lawyer would not have advised you about the possible implications of that clause since it is simply something that is not done.
IANAL, but that sounds like the sort of thing that would be legal malpractice.
Of course we don't... who has the time when he's got to read all those 400 page contracts?!
Incidentally, in Switzerland I've yet to encounter a 400 page contract. My current contract is quite hefty, but I very much doubt that the page-count reaches three digits.
I am at the moment buying a home (which is a much bigger deal for Swiss people than it is form US citizens) and I have yet to accumulate three digits in paperwork (much less contract material).
Frankly, you people are doing it wrong ;).
There's much law about "boilerplate contracts" - the law presumably doesn't apply here, but the idea does. If you have a contract that appears to be normal for the industry, and you tell someone it's the normal boilerplate, then many times the fine print doesn't matter, you have a boilerplate contract. Cheating people with the fine print is not an accepted legal tradition.
We have the principal as a society because we have better things to do than read long contracts in painstaking detail in cases where there are normal expectations. (More fundamentally, the contract is not th words on the page, the contract is the meeting of the minds, the words on the page are merely evidence of what that was.)
In this case maybe this sort of screw-job isn't that unusual, and maybe there's isn't an expectation of standard terms, I don't know. The startup acquisition I was involved in certainly didn't turn out all that well for holders of the common. I'm certainly never doing that startup nonsense again unless I know the principals personally - it's just so easy for the ordinary engineer to get screwed.
Socialism: a lie told by totalitarians and believed by fools.
Anyone who ends up working for a company that has a Private Equity partner needs to learn about what it means. There are plenty of tricks and trade secrets in private equity designed to reduce risk for the PE Firm and increase their upside. If you’ve worked in PE, these things are obvious, but even for very experienced business people, they aren’t so obvious.
If you want to know more of the tricks to how PE makes money, you should read Private Equity Secrets Revealed. It’s not just about employee contracts, but everything about PE tries to extract value as quickly as possible from investee companies. You’ll be interested to know that a PE Firm can make millions even when a company doesn’t grow. You can find the reading here:
http://www.theprivateequiteer.com/privat e-equity-secrets-revealed
Direct quote from the article.
How is this "opaque?"
I am very small, utmostly microscopic.
I don't understand the tax implications.
You buy a bunch of shares for $1 and sell the same number for $1 the same day, and you could end up owing millions of dollars in taxes.
If the "real" share price were $100 and you had options at $1, then you made $99 in taxable income off that option. That's taxed as earned income because it was a benefit of a salaried job. Then you take a capital loss of $99 on each share. Capital gains (and losses) are taxed at a lower rate to help shield the rich from those nasty taxes we burden their lives with. So because of how you gained and lost the $0 you made, you could end up owing lots of money on the sale that gained you nothing. If the tax code were more simple (capital gains taxed at your marginal rate, which it used to be), then you'd be right in that the gains and losses would cancel. But the tax code is made worse every year and could result in someone buying lots of stock on options, only to have those options recalled after the purchase, may owe lots of money depending on how the taxes are filed on the transactions and intricacies of tax code that most tax accountants don't understand.
Learn to love Alaska
It's likely about abuse of the language (while still remaining legal). "Options that never expire, even after you leave" is likely how it was sold, and he read enough to verify that was correct. However, they "expire" in practicality the moment he leaves because they can choose to re-buy them at the optioned rate. This is about "expiration" of the ability to effectively exercise options. He was told they wouldn't expire. He checked the contract that they wouldn't expire. They effectively expired. And thus the issue people would have with that.
"Free lifetime warranty" (valid for the lifetime of the product) is what we have here. People expect "lifetime" to be their lifetime, and if you redefine the useful word with a useless definition, then you can hide a contract with the opposite of the expected result in pages of legal sleaze. And even if you have a lawyer look it over, their answers are often no easier to understand - you'd need another lawyer to interpret the answers from the one you hired and so on. And if you asked the lawyer the specific question of "do they ever expire" they would rightly answer "no" despite the fact that they do, in practicality, expire upon termination of employment.
Learn to love Alaska
New trend in HR: Pup-peroni and Beggin' Strips as Recruitment and Retention Tools!
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"Internet Libertarian Warrior mode engaged!"
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