
Tech Companies Face Greater Scrutiny for Paying Workers with Stock - nikcub
http://www.nytimes.com/2016/04/18/technology/tech-companies-face-greater-scrutiny-for-paying-workers-with-stock.html
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ASinclair
Hopefully they face greater scrutiny from employees as well. It's annoying to
be compensated in stock. I don't want to deal with complex wash sale chains
just so I can dump my shares as soon as they vest. Just give me cash and let
me choose if I want to buy shares in the market like anyone else. If they must
give me golden handcuffs then do so in the form of cash bonuses at set dates.

~~~
KKKKkkkk1
What's the best way to eliminate the market risk you get when you're issued
RSUs? Short selling? Put options?

~~~
KMag
I could be wrong, but I think most companies prohibit their employees from
short exposure (shorting equity, being long equity puts, or short equity
calls) to the company, even if they're still net long the company.

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chollida1
There are alot "oh its wallstreet" comments here, but I'm not sure its
warranted in this case.

Investors in this case are pension funds, hedge funds and in some cases ETF
managers like BlackRock and Vanguard who are speaking up.

I can see how some tech employee's who get part of their compensation in the
form of restricted shares or stock options may look at this as wall street
attacking them, but in all honesty, run of hte mill employee stock rewards
pale in comparison to C level executive compensation.

This is targeted squarely at the Marissa Mayer's of the world not the average
Google employee.

This is a long running controversy. Below is a Harvard business review article
from 2003 about the issue. I remember that at one point it was a contentious
issue as to whether or not companies had to account for stock option/stock
grants in their GAAP counting.

[https://hbr.org/2003/03/for-the-last-time-stock-options-
are-...](https://hbr.org/2003/03/for-the-last-time-stock-options-are-an-
expense)

~~~
simoncion
> This is targeted squarely at the Marissa Mayer's of the world not the
> average Google employee.

You miss the point of _my_ "Oh, it's Wall Street scrutiny..." comment. If it
were _government_ scrutiny, we might see changes in how the current value of
the stock of a company that's not publicly traded is reported to its
employees.

At the "startup" I used to work for, I got stonewalled _every_ time I asked
for the valuation (whether current or near-to-medium-term expected) of the
stock options I had been offered. Friends at other startups report similar
stories.

Requiring companies to keep up-to-date information about current and expected
future stock valuation, shares issued, & etc would be nice. Requiring
companies to _disclose_ that information on demand to current or potential
future employees (along with _where_ in the queue the shares that one is
either being offered or are currently holding are) would be another nice step.

I get that keeping this information up to date might be a hassle. On the
_other_ hand, just how the fuck do you raise money without this information?
:)

~~~
cloudjacker
> At the "startup" I used to work for, I got stonewalled every time I asked
> for the valuation (whether current or near-to-medium-term expected) of the
> stock options I had been offered. Friends at other startups report similar
> stories.

OMG same here! Shit like this had me considering if any engineers would bite
in joining a union-like entity.

But life is all around still too decent for that.

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carc
You can't have it both ways people - when a company strikes it rich people
complain that the regular employees didn't get a big enough piece o the pie.
When companies do poorly, people complain that the employees totally got
screwed because their equity is worth nothing now.

You either can get paid in pure salary and have a lower ceiling (because
you're paying for less risk) and then be left out when the company does well.
Or you can get some stock with a higher ceiling/lower floor and be screwed if
the company goes down the drain. Either way you're not forced to take
equity... developers are in demand.

This is before even considering about trying to align interests of the
employee with the company..

~~~
majormajor
That's not an example of trying to have it both ways. There's no law that says
you can't have both a solid base salary _and_ a good equity grant, so you
increase the upside but get screwed less on the downside.

I don't see people on HN often arguing that companies shouldn't be _allowed_
to offer equity, more that people shouldn't blindly accept equity grants they
don't understand - that are smaller and more limited in upside than they think
- in exchange for greatly below-market salaries.

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brandmeyer
In the case of the big publicly traded companies, I have been assuming that
this was simply a way to securitize the large overseas cash holdings in these
companies. If the stock market values the overseas cash holdings as though
they were local reserves, then the companies can effectively pay some of their
biggest expenses (local employees' salary) with the investor's collective
belief in the overseas money.

A strictly rational market might price the book value of that cash at its face
value, less the tax burden of moving it to where it would be used. But I don't
think they are being rational overall: The potential future tax liability is
not counted as a liability, and the company's management is also being given a
multiplier as a reward for keeping all that cash (ex, trusting
Alphabet/Facebook/Apple as investment firms of sorts, expecting returns
greater than the investor's next best alternative). That's really weird to me,
since I would expect that to count as a discount against the company for
holding onto it as opposed to paying some of it back to the investors through
dividends.

The net effect is that means that it costs the company somewhat less to pay
its people in stock than in cash.

~~~
JumpCrisscross
It's better to withhold remitting profits to the United States if they are
used to pay for expenses which would have otherwise used after-tax dollars
from the U.S. This also incentivises the offshoring of production, since a
dollar overseas is now "cheaper," on a tax-adjusted basis, than a dollar
domestically.

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wonnage
> While the median number of restricted shares granted at Standard & Poor’s
> 1500 companies to executives and employees in 2014 equaled 450,198 shares,
> tech companies granted a median 798,000 shares of restricted stock to
> workers, according to data from Equilar, a research firm that provides data
> on executives, boards and compensation.

It doesn't appear that the author understands how this works...

~~~
bigtones
I agree, the number of shares is of less consequence than the total value as
the price of each companies shares varies wildly. If they all got the same
number of shares, I would choose to work at Google with a $790 share price
rather than LinkedIn with a $40 share price.

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ChuckMcM
I think this article boils down to two statements,

 _" Mr. Mahaney said stock-based compensation could “distort the quality” of a
company’s earnings and “make them look stronger than they are.”_ \-- this has
been a refrain from analysts for years, and the whole reason companies now
report options as an expense. The argument goes, if it doesn't "cost" anything
to give someone an option, then for a salary budget of X and a revenue of Y
you mis-report the cost of revenue so the revenue "looks better" than it
really is. In my experience, anyone who has worked at a job where part of
their compensation was stock options has never considered options "pay" like
the dollars that show up in your paycheck twice a week. They are always
lottery tickets, and given the trading restrictions at public companies,
usually a pain to exercise or cash out. Further distancing them in one's mind
from the notion of compensation. The second statement is this one;

 _" Ms. Hindlian says that while it can be reasonable for companies to pay
workers a lot in stock, the practice can become scary when the stock starts to
fall. “Particularly with software companies, you run the risk of losing your
leading salespeople, engineers and developers when the stock falls, because
employees feel like they’re getting a pay cut,”_ \-- For the folks that I
know, they don't consider it pay so if the options which they haven't
exercised are underwater they don't consider them a "pay cut."

It is closer to the truth to say that options with value (so called "in the
money") _do_ have a retention power on employees but only if they continue to
be worth something. And sometimes even that isn't enough.

But it is true to say that employees with options don't behave like little
autonomous drone actors moving in collective self interest, and that makes it
a lot harder to evaluate the enterprise value of a company. That difficulty
arises from the understanding that it is the people that make the company what
it is, and not being able to predict if those people will stay or leave adds
uncertainty.

The desire for mathematical evaluation is strong in the analyst community and
they continue to argue against anything that seems to affect that.

~~~
readams
This is nonsense. Remember that they're talking about public companies here,
and the stock grants aren't options but typically come in the form of
restricted stock units.

Of course people treat RSU grants as pay. It's taxed like pay and otherwise
acts exactly like pay except that it's tied to the stock price. For many
people it's the majority of the pay or an otherwise substantial component of
the compensation structure.

~~~
ChuckMcM
If we're talking RSU's sure, if we're talking ISO's not so much.

I would certainly agree with you on the RSU front, although there is the other
twist that some companies, like Google, don't equate RSU's 1:1 with actual
shares, they can go up or down depending on other factors. So you can have 100
RSU's that convert to 1 share or 200 shares depending on how much your manager
likes you. In that case it really doesn't matter if the stock price goes up or
down.

~~~
eitally
Wat? An RSU grant of 100 shares won't actually result ownership of 100 shares?

~~~
ChuckMcM
Not at Google, in California. When I was working there, one of the things they
really liked was a dynamic compensation system. Basically everyone got a
calibration score and that score dynamically adjusted your compensation, up
_or_ down.

To be fair it is a very creative way to avoiding the trap of over paying
people. The bottom line is that all grants are legal contracts, generally very
long and dense legal contracts, and it is useful to spend time to understand
them. California is an "at will" state, if either you or the employer doesn't
like the situation, either one of you can end it and be done.

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hkmurakami
I wonder what they'd say if said tech companies opted to increase salaries in
lieu of stock based compensation. After all, they complain at Costco for
compensating their workers too well and giving them benefits that are too
good.

Then you look at Wall Street and realize that the companies have some of the
highest worker compensation expense ratios around (though I think this is a
model to emulate for tech companies rather than shun. Say what you will about
WS, but despite their outsized pay for directors at the top, they do
compensate the average worker better than other industries)

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cloudjacker
Wall Street is wrong about this. Tech employees are still undervalued.

Feel free to bid the share price downwards. That would be a good thing.

Regarding the conflict of interest for management to do things that get the
share price up... what? How hard are we going to manufacture controversy here?
If there is a real optimization then reveal it.

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simoncion
Oh. It's Wall Street "scrutiny", rather than federal, state, or local
government scrutiny.

~~~
FireBeyond
"Investors are concerned with stock option grants".

reads more to me as "investors are reluctant to pay market rates for
engineers, but worried about losing control through dilution - want to find an
easy answer that doesn't cost them either"

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aaronbrethorst
free lunches and dinners!

~~~
simoncion
A $30 value -yours free- if you act _now_! Our recruiters are standing by!

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pink_dinner
The econony is slowing, so this shouldn't be a surprise.

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umeshunni
Damn those companies, trying to pay their workers with stock instead of giving
it to Wall Street.

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st3v3r
Actually, yes. Damn them. They should be paying workers with money, instead of
lottery tickets that will likely be worthless or diluted to worthlessness by
the time it's vested. (Doesn't apply, I suppose, to already publicly traded
companies).

~~~
umeshunni
Yeah - the entire article is about publicly traded companies.

