
Hedging Against Getting Paid in Stock - barisser
http://barisser.com/2015/06/getting-paid-in-stock-hedging-as-an-individual/
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fredkbloggs
Many if not most publicly-traded companies explicitly prohibit their employees
from hedging out their risk in this fashion. Check the fine print of your
employee handbook before doing it. And if you are a section 16 employee, you
should already know that you are almost certainly prohibited from doing it.

What, did you think you were the first to think of this?

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njs12345
Even if hedging the risk directly is banned, you may be able to create a
reasonable approximation by hedging shares of a near competitor. Apparently
people in finance who get paid partly in options do this kind of thing all the
time.

Also, how would you ever get caught if you just ignored what it said in the
handbook?

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foobarqux
You are also usually banned from trading in the stock of competitors.

~~~
fredkbloggs
I've never seen that. If you have, was there some list? It can be pretty hard
to even define competitors, especially if your own businesses are far-reaching
or fluid. I mean, if you work for GE, does that just mean you can't own
stocks? Or a company like Google whose actual business is narrow but whose
ambitions are unbounded? That would be pretty hard to defend.

~~~
foobarqux
I have had competitors explicitly listed in employment agreements with catch-
alls ("this is not an exhaustive list") with respect to non-competes. Indexing
is fine.

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gopi
This is what Mark Cuban did when he sold broadcast.com to yahoo in a all stock
sale - [http://www.quora.com/How-did-Mark-Cuban-save-his-wealth-
from...](http://www.quora.com/How-did-Mark-Cuban-save-his-wealth-from-the-dot-
com-crash)

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m3talridl3y
Before getting into the software industry, being paid in stock seemed like a
no-brainer, because I looked at tech salaries and thought that you people were
all making, at a baseline, well above what it costs to live a comfortable
existence, so why wouldn't you play the odds a bit and try for a valuable
payout when your stock options mature? Then I got a tech job and realized
that, no, most people in tech are still just making ends meet due to the
insane cost of living that descends like a dark cloud anywhere a thriving tech
scene springs up.

~~~
encoderer
Where I'm sitting, in SF, I see an industry of upper middle class people who
are more "wealthy" than "not wealthy." Now, there are plenty of people with
paper-money options and below market salaries (which are still above $100k
unless you're a masochist), but mid+ level engineers who are willing to work
in a company with liquid or semi-liquid equity and that is doing alright for
itself are having no trouble, even in todays insane real estate market.

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fishcakes
I think the spirit of this is misguided and goes against the spirit of the
compensation. The stock based compensation is designed to align everyone's
incentives as well as filter for individuals who believe in the prospects of
the company.

Hedging out your stock based compensation goes directly against this, and
misaligns you with the rest of your company. I think if you don't believe in
the companies prospects it is best to take another job or ask for more cash
and less equity.

~~~
mahyarm
No not really. Being an employee itself is a 'hedge against risk'. As an
employee with this kind of 'insurance' you still want the company to do well
and have the stock go up in value because it personally benefits you.

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lordnacho
This will work if you're paid in the stock of a big company, which will have a
market in its options as well. But then why not just short the things if you
don't want to have the stock?

It doesn't work for non-listed startups. Lots of idiosyncratic risk, and no
liquid market in the shares.

~~~
fredkbloggs
The cost of borrowing stock to short it is often higher than the corresponding
option premiums. You also generally need less on deposit to execute the
options strategy (that is, your value at risk will be lower, as will your
margin interest cost).

I could retort with an equally glib "why don't employers just pay their
employees in cash?"

~~~
lordnacho
Well, they're trying to pay you in stocks to make you feel like you need to
work harder. (I don't get what you are retorting to?) If you work for a public
company, you can short circuit this by removing the risk (via options or
shorting) and effectively taking the money immediately. I suppose they might
have something in the contract to stop this from happening, but I don't know
what the standard practice is.

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eropple
Most companies that are trying to pay you through equity are doing so not
(just) to make you feel like you need to work harder--which is a joke for the
obvious reasons--but, and this is no less important, _so they don 't have to
pay you in cash_. Cash is expensive and in the present. Stock is a question
mark nobody has to care about for years.

~~~
fredkbloggs
Except that cash has never in all of recorded human history been cheaper. So
the "cash is expensive" argument doesn't really hold water. Put another way,
something else must explain why equity compensation is more common now than in
the past, especially in light of how cheap cash is.

~~~
s73v3r
In this case, cash is still more expensive because they have to have the cash,
and they have to have it now. It costs almost nothing to issue the tiny
percentage of stock you'd receive, and they don't have to worry about actually
paying anything for a while, if ever.

