

Better Understanding Your Employee Stock Options - iancorbin
https://medium.com/@iancorbin/better-understanding-your-employee-stock-options-9c4b147b5ded

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dlevine
Good summary of stock options, but it leaves out some critical points. Namely
that the amount of tax you pay depends a lot on when (and if) you choose to
exercise your options. In order to get the best tax treatment, you have to own
the shares for at least a year. Otherwise, it's basically treated like income.
If your company is acquired for cash and you haven't purchased your shares,
you will usually be cashed out immediately at the difference between the
strike price and the purchase price.

In addition, you may owe tax at the time you exercise the options if your
strike price is below the fair market value at the time of exercise (also
depends on the type of options, there are two).

Also, you say that employees can't exercise options until they have vested.
The truth is that you can early exercise if that's written into the stock
plan. It makes things a tiny bit more complicated for the employer, but can
provide a huge advantage to you. Many startup founders down't know about this,
but will add it if you ask. Effectively you can buy all of your shares
immediately, starting the capital gains clock ticking and eliminating any tax
liability at purchase. If you leave, the company has the right to repurchase
any unvested shares. The only downside is that you need to come up with some
cash upfront.

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bhayden
It seems to boil down to having to trust your employer to be honest to their
word (and implications) about stock options and what their value really is.
Even in the most trusted of environments, I still would not fully trust what
comes out of the mouth of the person I'm interviewing with since they cannot
speak on behalf of any outside investors, (other) founders, or anyone else
with a stake in the company.

Given the nature of 99.9% of employer/employee relations, especially in salary
negotiation, I would never personally place any value in stock options of any
sort. There is simply no verifiable way to calculate what they are worth with
a million different ways for them to become worthless and no accountability
for a company to be entirely forthcoming.

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mallyvai
This is an absolutely silly mentality:

1) A lot of people do make money off of employee stock, you just have to be
reasonably intelligent about it. This blog post is a good way to model
risk/reward.

2) Thinking of your employer as your enemy is a great way to set yourself up
for failure.

3) Don't think of stock as worthless, think of it as a bunch of lottery
tickets. It has some probability of being worth something based on the
lottery.

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bhayden
The lottery comparison would be fair if the organization running the lottery
was incentivized to not pay you if you won and could very easily, in both a
legal and acceptable-in-the-course-of-businesss way, deny you your winnings.
You are basically relying on a huge pool of people who are making the
decisions to be a nice guy and true to their word.

I'm not suggesting you consider your employer an enemy, there's obvious a
mutual benefit to you working there, but never should anyone assume a business
has your best interests at heart because they almost never do.

