
Update on Stock Options/RSUs Vesting Issue - runesoerensen
http://avc.com/2017/11/update-on-stock-optionsrsus-issue
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tptacek
_This means that the Senate has now made the tax reform bill a win for those
who work in startups instead of a loss._

It is seriously gross that a tax reform bill that is by basically all accounts
enormously, even proudly regressive is being sold to tech nerds with a
marginal improvement in stock options accounting.

Here's a fun detail of the GOP tax plan: it will, according to Senate
leadership, include a repeal of the ACA's individual mandate, which is the
foundation on which guaranteed-issue health insurance works.

Prior to the ACA, if you or anyone in your family had, in any previous
doctor's visit, been assessed/documented as having _any symptom_ of a very
long list of disqualifying conditions, you couldn't buy individual-market
insurance at any price. It was simply unavailable to you. There is no due
process or meaningful appeal to these decisions, which were made mechanically
and in bulk. How do I know? Because half my family --- none of whom suffers
from any chronic conditions (or, really, any conditions whatsoever) turned out
to be uninsurable when we started Matasano.

If you work for some gigantic startup like Github or Airbnb, and your equity
turns liquid in 2 years, here's a newsflash: the GOP tax bill is going to
include a windfall for you. That probably would have been the case regardless
of whether it included a new perk specifically for startup employees.

But if you're _starting a company now_ , or if you just in general care about
the rationality of our public policy and the way we finance government, you
should be extraordinarily wary of anyone --- especially an investment banker,
even if they happen to be wearing khakis and a zip-front sweater --- trying to
sell you this new bill. Their incentives are not the same as yours.

~~~
BenchRouter
> It is seriously gross that a tax reform bill that is by basically all
> accounts enormously, even proudly regressive is being sold to tech nerds
> with a marginal improvement in stock options accounting.

As with all things, worth remembering who's writing this: Fred Wilson is an
extremely wealthy venture capitalist. He stands to benefit a great deal from
provisions like the repeal of the estate tax.

~~~
jalonso510
I don’t think it’s fair to say he’s just looking out for his self interest
here. If you read his post, he’s not advocating for or against the tax bill,
just talking about this one particular term that affects startups.

~~~
karthikb
The post explicitly says:

"This means that the Senate has now made the tax reform bill a win for those
who work in startups instead of a loss."

Not the provision about options - "the bill."

So he's clearly saying that the bill as a whole is better for startup
employees than the current system. GP point is that the bill may now be better
from one single perspective but on the whole is still much worse than what we
have today due to other issues.

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bryanl
How is this a win when it is coupled with the changes to healthcare that could
adversely affect millions? Once again it looks as if super wealthy America is
out of touch with the masses.

~~~
RickJWagner
Healthcare is a different issue.

It's in a messy state right now, it has been since an unsustainable system was
put in place.

Please don't conflate issues.

~~~
mikeash
It’s not a separate issue when Congress adds a repeal of the individual
mandate to their “tax” bill.

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hardwaresofton
I wonder who, where and how pressure was applied. There certainly was no
groundswell of citizen support or mass calling of representatives (except for
maybe in the heart of SV, and the fringes of HN/Reddit/Slashdot _maybe_ )...

That said, can anyone give me a compelling reason why Options/RSUs are better
than getting the equivalent amount of straight cash (even with tax
considerations) from an employees point of view?

~~~
t_fatus
When you're a small company which hope to grow it can be a win-win for both
you and your employees (if they understand correctly how options work) : you
may be short on cash, but confident in your growth, and if they too feel
confident they can choose to work for less cash compensation but with a chance
of getting more when converting their options later

~~~
colinbartlett
I have a drawer full of stock option paperwork from various start ups I’ve
worked with over my career, all of which were “confident” in their growth
prospects and none of which exist anymore.

At this point I feel like anyone who chooses stock options over cash is naive,
delusional, or misled.

~~~
jsjohnst
> I have a drawer full of stock option paperwork from various start ups I’ve
> worked with over my career

Ditto, but I’ve also had two good success stories in my career too.

> At this point I feel like anyone who chooses stock options over cash is
> naive, delusional, or misled.

Why does everyone think it’s an either / or scenario? I’ve negotiated to have
both more than once, salary at where I feel I should be and options/RSU where
it _might_ be a very nice bonus at a future date. Don’t be afraid to say no
and keep looking if a company is taking advantage of you. I realize it’s hard
sometimes, but the folks on HN generally can have the upper hand negotiating
as tech employees are in such demand.

~~~
colinbartlett
I'm fortunate that I recognized early the negotiating position I had, and each
one of those worthless pieces of paper came with what I would consider a
generous, above market salary.

But I worry that many new to the industry are selling themselves short with an
"or" and not realizing that an "and" is possible.

~~~
sidlls
Well, an "and" is possible to the extent that there isn't a sufficient supply
of people thinking "or" competing for the job.

There are a number of self-imposed mechanisms that put downward pressure on
compensation for developers. Willingness to take what are effectively lottery
tickets and rationalizing it as discounted or future potential earnings is one
of them.

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ajmurmann
I hugely applaud this step. I do think that there is in fact some injustice
going on here and that's why crazy legislation like this can make it that far.
The real problem is that capital gains get taxed lower than ordinary income.
It's not right that most of a CEO's income gets taxed lower than his
secretary's. Unfortunately it seems nobody has the balls to address that.

------
slantedview
> This means that the Senate has now made the tax reform bill a win for those
> who work in startups instead of a loss.

Grossly inaccurate statement. Nearly all of the analysis of the tax bill
throughout its many iterations so far find that it is a long term net loss for
all but very, very high income earners.

~~~
ameister14
>Nearly all of the analysis of the tax bill throughout its many iterations so
far find that it is a long term net loss for all but very, very high income
earners.

Provided, of course, that incomes stay exactly the same, ignoring predicted
increases, and inflation continues at predicted rates.

~~~
seattle_spring
Who is predicting increases in income? Breitbart doesn't count

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inthewoods
Can someone explain the 5 year deferal on options mentioned at the end of the
article?

~~~
pcl
It means that if you have vested options to buy stock at an illiquid company
(one that is still private, for example), you can quit the company and defer
exercising those options for up to five years after your termination date.

This is in contrast to current law, which requires only 90 days of grace
period.

This effectively legislates what AirBnB, Pinterest and others have been doing
due to free market pressure [0].

This is good for employees, since you might not have enough money to pay for
the taxes on the stock that you vested and exercised (due when you exercise
under current and proposed law). But arguably, it’s not really important for
the government to mandate this; it’s sufficient for the government to allow
deferred option exercise dates (which is the case in current law).

As tptacek wrote, this has a stench of pandering to it; the new tax law is IMO
largely bad (and I say this as someone who probably stands to benefit from
it). But this wrinkle is most certainly better than the proposal from
yesterday, which I believe would have been stifling to startups and would have
pushed most startups to either defer any fund-raising to keep valuation low
and thus options affordable to new hires (bad for startups and VCs; good for
incumbent companies due to reduced competition), or to do huge raises to
compete on salary alone (bad for startup founders and employees due to
presumed higher percentagowned by VCs; perhaps good for VCs if it didn’t
damage startups too much; good for incumbents since it again makes startups
higher-friction).

[0] [https://github.com/holman/extended-exercise-
windows](https://github.com/holman/extended-exercise-windows)

~~~
StevePerkins
Does this have modify or have any effect on pre-existing option grants with
people's current employer? Or is it only for new option grants going forward?

~~~
pcl
This sort of thing almost always only applies to new contracts.

------
BenchRouter
Here's what's confusing me: Why would this make any sense, at all?

From the government's point of view, they were trying to maximize tax revenue,
right? And theoretically that occurs when the security price is at a (local)
maximum, which would also likely be when employees choose to exercise.

Or is the idea here that they can tax options at the short-term rate as
opposed to the long-term rate?

And even then, does that really make up for the substantial difference in
market price (and thus taxes)? The "market price" (whatever that means here)
of an early-stage startup's options has to be significantly lower than a post-
IPO company.

~~~
URSpider94
You’re still taxed on all of the gain. The initial taxation upon vesting would
reset the basis. Any additional gains would be taxed when you sell the
underlying shares. It would have done two things: a. Pull in revenue to an
earlier date (a key factor in this tax plan, since all of the gain/loss
calculations are on a 10-year timeline) and b. Lock in gains, even if the
shares are later worthless. Yes, you can theoretically write off the losses,
but only a few thousand dollars at a time if you don’t have offsetting gains.

