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.

Comments

The profit is the profit

[alphatel]

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.

Re:The profit is the profit

[bughunter]

I am the employee who generates value for your company. If your staff isn't generating more money than it costs, then either you're a poor manager, or your business plan has already accounted for that and hopes to recoup the losses later. If you want assured profits, then you need to compensate the employees who generate the wealth.

Yes, you steer the ship, but the employees are the engine, the sails, the hull, and the bilge pump. Without us, you'd be steering a canoe instead of a battleship. Take care of us like you'd take care of your ship, or else sooner or later you'll be swimming with the bankruptcy lawyers. (I hear they have dolls' eyes.)

...opaque language is the norm.

[John Hasler]

It wouldn't be if you people would quit signing things you don't understand.

Re:...opaque language is the norm.

[v1]

The 11-page stock option agreement he signed looked to him like boiler plate and suggested a typical "one-year cliff" at which point 25 percent of his four-year option grant would vest. 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.

It's easy to tell someone "be sure to completely read what you sign", until the day someone sets a 45 page or otherwise excessive amount of fine print in front of you, summarizes it, and asks you to sign it. Try buying a house. If you're really going to read the entire stack of morgage papers, you're going to need a few days. And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.

This one pulled a double-shaft on him... the offending bit of legalese wasn't even in the document he signed. It was something like a "this agreement also includes stipulations covered in a different document". He couldn't possibly have caught that even with a lawyer reading over his shoulder, without taking a break and doing research and chasing down the additional paperwork (that he wasn't even provided with at the time of signing) that it was binding him to. That's about as far into "dirty pool" as fine print can get.

Re:...opaque language is the norm.

[MightyMartian]

It may cost you, but I suggest anyone signing this detailed a contract go to a lawyer. Of course, this is likely non-negotiable, so you'll either accept the contract in front of you or say "Thanks, but no thanks" and go to the next job where it's likely you'll be faced with the variation on a theme.

Re:...opaque language is the norm.

[betterunixthanunix]

If you're really going to read the entire stack of morgage papers, you're going to need a few days

Heaven forbid someone take a few days to read and understand the terms of such a large loan and purchase. It's not like people spend a large fraction of their lives repaying a mortgage. It's not like people might have to deal with the mortgage rate changing on them a few years down the line.

And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.

We're not talking about buying a laptop, we are talking about buying a house. Yes, I would want to have a lawyer look over the contract before I agree to repay hundreds of thousands of dollars to the bank.

the offending bit of legalese wasn't even in the document he signed

So he should have either asked for the document that the contract referenced.

He couldn't possibly have caught that

Yes he could have, if he had actually read what he was signing. He did not read it, he just assumed that he could work at Skype for a year or so and then jump ship, like he had done nine times beforehand. Why are we feeling sorry for this guy?

Re:...opaque language is the norm.

[Kenja]

I purchased a house. I read everything I was asked to sign. Yes it took time, but the responsibility of understanding what you sign is on you and not the contract issuer. "I didn't read it" is not a defense that will often stand up in court, so actuly spending a little time reading is your best bet. And given the amount of money involved in a job or house, why wouldn't you be willing to spend the time?

Re:...opaque language is the norm.

[Culture20]

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

Re:...opaque language is the norm.

[TheRaven64]

Same here. I don't think it took more than half a day to read everything. The contract of sale was only 3 pages, the mortgage agreement was 4. The leasehold agreement was the longest, but since I was also buying the freehold, making the leasehold agreement an agreement between me and myself, it was somewhat moot (yes, British law is weird). I read it anyway though, just in case.

When you're borrowing an amount of money that's measured in multiples of your average income, and buying something that costs even more, you'd be absolutely insane to sign without reading it in detail.

Actually, the contract my publisher uses for books is a bit more complex than any of the bits of paperwork that I had to sign for my house, and I've never received one of those without sending back a load of complaints about it and getting it amended. I'd expect to do something similar with any contract of employment.

If I were hiring a CxO, I'd put a clause in the middle of their contract saying that they could be fired for any reason within the first 10 days and would have to pay a $100,000 fee to cover the costs of hiring a replacement if this clause were invoked. If they didn't object to this, I'd fire them on the first day - I wouldn't want someone who didn't read contracts and understand the implications of the terms in a senior management position.

Re:...opaque language is the norm.

[Culture20]

These contracts are 1 way deals. You either sign it, or no job.

You can alter it and hand it back over to them. They give you a contract you like, or they don't get your work. 2-way deal.

Re:...opaque language is the norm.

[Bacon Bits]

"I didn't read it" is not a defense that will often stand up in court

That's true in contract law, but "intentionally deception for gain" is known as fraud. That's actionable civilly as well as criminally. If a large number of employees signed this contract and left, you're looking at a really bad situation for Skype's executives.

Re:...opaque language is the norm.

[pugugly]

It's not like people aren't trained to read legal papers . . .

Oh, wait, that kind of training takes 8 years and $100,000 dollars. People actually *aren't* trained to read and interpret legal papers, that might be why corporations hire lawyers to create contracts in which important legal information is hidden on other papers not made available at the time of the signing of the contract, completely ignoring the concept documented under the Uniform Commercial Code saying that a contract involves coming to a 'meeting of the minds'.

Sorry - I'd have to say this should be brought to a court. A contract does involve a meeting of the minds, and the company *knew* this addenda was entirely relevant to that meeting of the minds and took positive steps to hide that fact.

"In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation."

As a potential member of a jury pool, does putting such relevant information in a document not available at the time of the signing of the contract strike you as being either accidental or forthcoming?

Pug

Re:...opaque language is the norm.

[rainmayun]

If I were hiring a CxO, I'd put a clause in the middle of their contract saying that they could be fired for any reason within the first 10 days and would have to pay a $100,000 fee to cover the costs of hiring a replacement if this clause were invoked. If they didn't object to this, I'd fire them on the first day - I wouldn't want someone who didn't read contracts and understand the implications of the terms in a senior management position.

That'd be a pretty good way to scare off any future CXO candidates of any quality.

Re:...opaque language is the norm.

[lpp]

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

That's as may be, but if this sort of legalese becomes the norm, then a recruit's defense against that legalese should become the norm as well. Put another way, if you as an employer are going to harass me with contracts that are too unwieldy for me to reasonably be expected to read and understand in a short amount of time, then you should expect me to counter with lawyers who will look out for my best interests.

Of course, in the end, it's still the lawyers who come out ahead in all of this mess. I'm imagining law firms waiting in their offices, anticipating the oncoming rush of employees requesting their skills in order to review the very employment contracts the law firms were asked to produce in the first place.

Re:...opaque language is the norm.

[failedlogic]

I agree with your point. But, the fact of the matter remains that contracts are too bloody complicated. We should opt for universal language in employment contracts and make them easier for the employee to understand. One where for most workers can confidently sign the contract knowing they understand all the rules and regulations without having a contract or (as some people do) believe what their boss or HR is telling them it means without even reading it. Exception being C-level positions where they can afford a lawyer.

Every place I have worked has significantly different wording in the contracts even though I'm doing the same type of work in the same industries.

Re:...opaque language is the norm.

[Anonymous Coward]

Whenever I've been presented with a contract that I can't read there because it's too long I always say "I'm going to take this home and read through it before signing". I've never gotten an odd reaction from anyone when I've done that.

If they require that I sign then and there then I'll decline what ever it is the contract is for. I don't care if it's the job of a life time. Forcing me to sign something that's been just handed to me is a tactic. If they're using tactics then they're trying to trick me into something. If they're trying to trick me then what ever it is they're offering is probable a lie.

Re:...opaque language is the norm.

[snowgirl]

If you're hiring someone, and he says "let me call my lawyer", don't you get a knot in your stomach, like maybe this guy likes to sue a lot? Who calls their lawyer over an ordinary job contract (I've actually never signed a job contract; I've just been given confirmation of what I'll receive in return for my work)? Maybe he's planning on suing this company once he's hired? Maybe he's planning on suing this company for not hiring him? Maybe he's planning to slip and fall in the meeting room?

Huh, now that you mention this, perhaps it explains more why my insurance company dropped me than everything they said to my face. Basically, I had a crash, and they gave me a form to sign which would give them limited power of attorney, but would indemnify them for all acts they took while acting as my power of attorney. I crossed it out and initialed the cross out. When the person asked me if I were allowed to do that, I noted that I wasn't going to give them carte blanche to commit fraud in my name, and that the law already held them indemnified for things that were my fault, and which they were just conducting. (Like, say, I had stolen the care and faked a title, they would be held indemnified...)

I later saw a different power of attorney form from a different insurance company that stated that they would be held indemnified in accordance with state and federal law, and other such limitations that made it clear that I wouldn't stand in as at fault in a court if they decided to commit fraud in my name.

The fact that I argued with a boiler plate contract that hojillions of people have signed before probably led them to think "she's too smart, and actually reads fine print, and can deduce legal consequences of terms." Not that I think they were protecting some vast scam or anything, or even that they were doing something wrong... just that they don't want to deal with litigious people.

That of course beats the hell out of my other theory that they dropped my coverage because they were adamant Christians who were disapproving of my lifestyle choices...

Re:...opaque language is the norm.

[OeLeWaPpErKe]

A private person suing a legal person does not have to "prove" anything in a civil case. It is not the case, in Christian nations, that "a contract is a contract". In nations with laws based on torah law you might be fucked (and I'd say sharia, except all such nations adopted napoleonistic law or english common law for reasons that are obvious to anyone reading even basic principles of sharia. So those nations only partially apply sharia where pertaining to "family matters" (inheritance, custody and divorce cases) ). Especially in this case, the requirements for a contract CLAUSE to be binding (esp. in Luxembourg) are that :

both parties must express explicit consent for the explicit agreement to be made (whether written or verbal) (every clause is looked at as a separate agreement, and any clause can be invalidated separately, and the judge is supposed to leave as much as humanly possible intact. So invalidating a clause in your employment contract in court never means the company can get your pay back)

A contract is not a paper with a signature in pen. A contract is the written form of an explicit mutual agreement in which both parties enter voluntary.

The big exceptions to contract law :
1) the law does not allow such contracts (e.g. slavery contracts are unenforceable no matter how well they're written)
2) there was no mutual agreement of wills (e.g. one party was drunk (if you try that excuse in court, expect to pay damages), or insane, or under custody)
3) the contract is one-sided : all advantage go to one party, a contract is supposed to benefit both sides, if it doesn't -> no contract
4) the contract has an escape clause : an escape clause cannot allow one side to back out of the contract without consequences (you can have escape clauses that pay damages, though. E.g. an employer CAN say : we can deny you your options by paying you the profit you would have made from immediately selling them)

So in this case that explicit consent obviously doesn't exist for that clause, and it violates other basic principles of contract law as well. One of the parties did not understand the contents of the contract, and the case can be made that it was not reasonable to expect him to (that is the critical part). So obviously there was no explicit consent about this clause. It seems to me that it would be quite easy to get a Luxembourg judge to agree that this clause is therefore not enforceable, and the firm is both forced to allow him to vest his options normally and liable for damages for trying this.

Re:...opaque language is the norm.

[Registered Coward v2]

It may cost you, but I suggest anyone signing this detailed a contract go to a lawyer. Of course, this is likely non-negotiable, so you'll either accept the contract in front of you or say "Thanks, but no thanks" and go to the next job where it's likely you'll be faced with the variation on a theme.

I've never run into a job related contract that is non-negotiable - whether it's salary, benefits, or other details. The contract is the first offer - you need o decide if it's acceptable or not. I've done that and in most cases we come to an agreement on what works for both sides. If we run into an issue that can't be resolved the i simply walk away. It's better to do that up front than wind up suing.

Re:...opaque language is the norm.

[Stiletto]

Rule of thumb: If a contract is "dozens" of pages long, someone's getting screwed.

Re:...opaque language is the norm.

[Slashdot Parent]

Actually, if you're buying a house like most people, which is via your local association of Realtor's contract and Fannie Mae/Freddie Mac mortgage paperwork, there is probably no point in having an attorney review it. Those documents have been reviewed by more attorneys than you could ever count, and none of the terms are negotiable (with your lender, anyhow).

Now, it may still be worth a few hundred bucks to have an attorney attend closing with you, especially if you are an inexperienced buyer, to make sure nobody pulls anything shady with you. But you can be sure that the attorney is not going to read your off-the-shelf documents line by line.

Come to think of it, a banker that I've used for a few transactions tells a funny story about a buyer who brought an inexperienced attorney to closing. The attorney started going through the standard mortgage docs with a fine-toothed comb and started crossing stuff out, rewriting clauses, etc. After 20 minutes of this nonsense, the banker asked the attorney if she could speak with him privately.

They left the room and she said, and I'm paraphrasing here, "These terms are set by Fannie Mae and are not negotiable. If you don't cut this shit out, the bank will simply decline to fund the loan, and your client will lose his interest rate lock and potentially lose the house. I suggest that you advise your client to sign the agreements without modification, or you are going to become an extremely unpopular attorney with our client." Yeah, so the attorney changed his mind right quick about trying to negotiate the time-tested, court-tested docs.

Re:...opaque language is the norm.

[mandelbr0t]

After the way I've been treated, I will call a lawyer for an "ordinary" job contract. Such "ordinary" contracts include:

• no stipulation on number of hours per week
• vague ownership clauses that take ownership of creative efforts outside work hours
• any number of reasons an employer can terminate without cause or notice

These are all violations of the local labor law, but "it's the norm". Most agencies now won't give you anything that's enforceable in a court of law. Basically, they give you a job one day, and you just keep showing up until they tell you to go home, usually a scant week or two after you've started. The employment agreement basically says "not an agreement" at the bottom. Employees have no rights left, and contracting and employment agencies are to blame.

Re:...opaque language is the norm.

[nahdude812]

especially if it would be difficult for a layperson to understand

See, here's the problem with the Skype arrangement. It talks about vestment in stock options, which is a pretty simple term most people who would be considering working at least in part for options can easily understand. Then in exactly a single sentence, mentions a different document, not presented with the contract, which document basically says, "Know that stuff about vestment? Just kidding, we take it back."

So on the surface it looks like the kind of contract a lay person can understand, and subtly under the surface is a single sentence which completely changes the meaning of the entire contract. You could hire a lawyer, but possibly even (s)he would miss this.

It wouldn't surprise me at all if this was struck down if challenged in court, but this investment firm just scored several billion dollars, even for a relatively hefty options exercise, they can probably sap that value out of you in legal fees.

"confusing"

[superwiz]

"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.

Been there, done that

[mark_reh]

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.

Re:Been there, done that

[Chris Mattern]

If you are given options that have a market value of $X, the IRS considers you to have gotten taxable income of $X, even if you can't currently sell them. Even though they only take tax payments in cash and didn't *get* any cash. Yes, a lot of people have been very thoroughly screwed by this.

Re:Been there, done that

[hedwards]

Even in cases like Microsoft where the management team isn't trying to screw people over it can still happen. I remember a few years back they stopped granting options because they had so many options outstanding and most of them could never be exercised due to the strike price.

And really companies shouldn't be granting options, the fewer options there are the better. If a company wants to tie an employees benefits to the stock price, just give them actual shares in the company. Options themselves just muddy up the waters and make it much harder to figure out what the company is really worth.

Re:Been there, done that

[CodeBuster]

If you're working for stock options you're going to get screwed.

YES! Let this be a warning to all techs and other employees who are offered shares in lieu of pay or other benefits. The lawyers and private equity guys will screw you over. Actually, its worse now than in the past because fewer deals ever go fully public due to the Sarbanes Oxley reporting regulations and bullcrap; who needs it? What VC would want to deal with all of that when the company can instead be sold to a private equity firm, a hedge fund perhaps, with most of the profit still intact? If nothing else, remember what they say in Hollywood: "a share of the net profits is a share of nothing." cash money on the barrelhead...accept no substitutes.

Re:Been there, done that

[waimate]

And why would you pay taxes on _OPTIONS_ ?? If you exercised them, and sold the resulting shares, and paid taxes on the gains from THOSE, then you still came out ahead.

Troll.

Because an option has a value. It's the right to indulge in pricing time travel -- to buy something in the future at today's price, but to only do so if it works out to your advantage. That's a pretty handy thing, and clearly has value. Who wouldn't want the right (but not the obligation) to buy oil, wheat or MSFT three years from now at today's price. Nobody's gonna give you any of those rights for free, and that's because the right has a tangible value *now*.

The details will vary by country, but in my country, granting an option can create a tax liability at the time of grant, even if the option is never exercised. When you design the options scheme, you have to do it carefully to ensure that the tax liability is created at the right point. It's one thing to pay tax when you've made some money. It's quite another to be hit with a tax bill when you've received something that ends up amounting to nothing.

Harsh terms vs. opaque language

[Sgs-Cruz]

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.

Re:Harsh terms vs. opaque language

[Rakishi]

Hate to tell you this, since you're apparently not part the group, but for top quality people it's almost better than the 90's. Good silicon valley companies understand that quality matters, and they will pay for it and actively recruit it. There is more demand than supply.

Private options can be diluted on a whim

[Anonymous Coward]

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.

Re:Private options can be diluted on a whim

[HungryHobo]

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.

Re:Working for stock options

[Rakishi]

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.

Re:Working for stock options

[93 Escort Wagon]

Next time read the article

Now, now, let's not get too carried away.

Re:Working for stock options

[betterunixthanunix]

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.

Winning at all costs?

[DoofusOfDeath]

, "You've got to be in it to win it.

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.

Re:Winning at all costs?

[da cog]

Indeed, that single quote in the context of the situation has told me enough about Skype to prevent me from even thinking about ever working there in the future.

Making it clear that you will screw over employees who will not stay with you indefinitely since you are out to "win" is not only a horrible attitude towards life, it isn't even a good way to attract "the best and the brightest people to build great products" because most such people get bored working on the same products for a few years and will want to move on to new challenges, so if you make it clear that anyone who decides to move on will be screwed over then you are basically saying, "If you are the best and brightest then don't work here because we don't want the likes of you!"

Re:Winning at all costs?

[GreatBunzinni]

What strikes me as odd in that astonishing comment is that, without the stock option (which was instrumental in keeping those same brilliant people employed at that company), what else is there to "win"? The paycheck, which everyone can easily get from any company, or only the shaft which they are giving to their loyal employees? In fact, thanks to this dick move, does anyone believe that working for skype, or any company which private equity firm Silver Lake comes close to, is now something to dream about? Obviously not. They just demonstrated that skype managers are filled with contempt regarding their employees and that private equity firm Silver Lake is there just to screw even their mothers if it makes them a penny richer.

Another thing that strikes me as odd is that, according to the public statement, one of the reasons they did that is to stop employees from leaving their job. This is terribly insulting, even to the most hardcore neoliberal capitalist out there. This is sociopathy. They are actually stealing their employees income with the expectation that if they are poor enough they will be forced to stay in a job they hate because, being so poorly paid, if they quit their job they will face the risk of bankruptcy. Talk about grade-A psychopaths.

Re:Winning at all costs?

[PhunkySchtuff]

With Skype in particular, no only do they shaft their employees, but what about all the company executives that were fired shortly before the Microsoft acquisition so that they didn't need to get paid any bonuses on the sale of the company. Talk about grade-A psychopaths indeed.

Re:Winning at all costs?

[tompaulco]

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.

Re:Improper Framing

[Rakishi]

Congratulations on showing the exact opposite of what you meant, specifically that the language used by Skype is too confusing to understand.

The letter, specifically the third paragraph, says that he can only exercise his options at the grant price. In other words he will make $0 on it and have to pay taxes despite that. So he has 90 days in which he can do nothing of value with his options.

Also covered in Wired

[Anonymous Coward]

I don't see any mention of the Wired article "Downgrading Skype and Silver Lake to ‘Evil’" in the comments, so here it is.

Re:Read before you sign

[Rob the Bold]

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.

You know what, if you want me to work somewhere for at least 3 years, why don't you just make the minimum vesting time 3 years? Be it at Skype, Chotchkie's or wherever.

Re:Working for stock options

[techsoldaten]

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 honestly thought this was common knowledge

[tgd]

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.

Re:Working for stock options

[Hazel Bergeron]

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!

Re:Let me guess..

[TheRaven64]

For those unfamiliar with cockney rhyming slang:

Words are rhymed with two-word phrases, but the second is omitted. For example, thief becomes tea leaf, so calling someone a tea means that they are a thief. In this case, the phrase is 'septic tank', which rhymes with 'yank' and means someone from the USA (even someone from the south - sorry!), so the grandparent was asking if the person who's immediate reaction was to consult a lawyer and sue was American.

Re:So what?

[Machtyn]

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.

Re:Working for stock options

[symbolset]

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."

Contracts are 1-way only if you don't negiotate

[Spril]

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.

The law is not Caveat Emptor

[pslam]

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.

Stopped basing decisions on stock options

[theshowmecanuck]

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.

Re:Stopped basing decisions on stock options

[wrook]

Stock options are a way to pay you without having the money come out of operations. Usually, the options are covered by stock that the board has authorized the company to create for that purpose. It costs the company nothing for you to exercise the option, the cost comes in the dilution of the stock. In other words, the shareholders end up paying the bill due to lower share value. This isn't always the case. Sometimes the company will buy back stock to cover the options, but it isn't very common (though if they do, it still potentially comes out of a different budget which allows them to play games with their accounting). Using options as compensation may even allow the company to avoid payroll taxes and the like (depending on the country).

Re:Working for stock options

[pla]

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".

Re:Working for stock options

[Stiletto]

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.

Re:Working for stock options

[haystor]

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.

Libertarian swine!

[tqk]

Internet Libertarian Warrior mode engaged!

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.

Re:Libertarian swine!

[Cyberllama]

I question whether many of you using that word have any idea what it means

Particularly true of almost everyone using it to refer to themselves. The ACLU, for instance, is a Libertarian organization by definition.

I don't know when Libertarian became about irrational free-market worship or "sovereign citizens".

Re:Libertarian swine!

[rjstanford]

>>The ACLU, for instance, is a Libertarian organization by definition.

Unless, you know, it's about a Valedictorian trying to throw props out to their deity of choice during a graduation ceremony, or a city government giving a cheap lease to religious charitable groups or the Boy Scouts.

Their definitions of freedom and liberty doesn't seem to encompass those concepts.

On the contrary. A local government is free to give out a cheap lease to a religious charitable group. They're not free to only do so for the charities they deem "proper," and charge double-rent to others to drive them out of town.

Options != equity

[emt377]

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.)

Re:Working for stock options

[AK Marc]

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.