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If You're Working For Stock, Read the Fine Print

Posted by timothy on from the see-subclause-in-above-subparagraph-g-to-wit dept.

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.

7 of 374 comments (clear)

  1. Been there, done that by mark_reh · · Score: 5, Informative

    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.

    1. Re:Been there, done that by CodeBuster · · Score: 5, Informative

      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.

  2. Private options can be diluted on a whim by Anonymous Coward · · Score: 5, Informative

    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.

    1. Re:Private options can be diluted on a whim by HungryHobo · · Score: 5, Insightful

      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.

  3. Re:...opaque language is the norm. by v1 · · Score: 5, Insightful

    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.

    --
    I work for the Department of Redundancy Department.
  4. Re:...opaque language is the norm. by betterunixthanunix · · Score: 5, Insightful

    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?

    --
    Palm trees and 8
  5. Re:Working for stock options by Hazel+Bergeron · · Score: 5, Insightful

    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!