
I Don’t Care How Well You Code, Understand Your Compensation - signa11
https://hackernoon.com/i-dont-care-how-well-you-code-understand-your-compensation-a1e810973c5e#.htkm7xfnq
======
flexie
I think it's mostly supply and demand, timing and where you live. But those
are the factors we rarely talk about.

Instead, people complain they are not compensated enough relative to the
importance of their work, their intelligence, the hours put in, their title or
the length of their education or the risk they take.

If people were paid according to the importance of their jobs, I would argue
that plumbers, sewage workers and farmers should be paid higher than
programmers. If it were about intelligence, most physicists I know are
underpaid and programmers are generally compensated fairly. If it were about
hours put in, many of the people producing our clothes should be paid better
than us. If it were about titles, programming should be behind almost any
other engineering field. If it were about length of education, programmers
would generally rank much lower than they do because so many don't have any or
much formal training. If it were about risk, in just about any other
profession people have taken larger risks than a programmer joining a startup.
So you "risk" only making $40,000 for a couple of years? Yeah, well, that's
the calculated risk your English high school teacher knowingly took on for
life when she decided to take a bachelor in arts. And yes, she could have
become a developer or lawyer instead. What about the risk of work injuries
faced by construction workers every day. That's real risk. Our financial risks
are modest worries.

Programmers in 2016 are generally very well compensated for a low risk, indoor
job with a very low barrier to entry.

~~~
nilkn
I think there's truth here, but I also think programmers routinely
underestimate the quality and compensation of other careers that they think
are "below" them.

For instance, you did it in this very post. Do you really think that all high
school teachers are locked into making $40k for life? Here where I live (a
large city, but also a pretty affordable one), teachers start at ~$55k in base
salary, get a whole range of benefits including a pension plan, actually
really do have the summers off (plus numerous other breaks), and leave work at
3:20 PM every day. If you were to have them work year-round and go home at
6-7PM and convert the pension plan into salary, the salary would easily exceed
that of most entry-level engineers across all disciplines in the area. When I
graduated college, I had engineering friends being offered salaries in the
$60-70k range for considerably less stable jobs, much longer hours, virtually
no time off, and much fewer benefits.

~~~
colanderman
To be fair, no teacher I have ever known has stopped working at 3:20 PM.
Grading and planning often go far into the evening.

~~~
ryandrake
Additionally, no teacher I have ever known has had the summer off. Summer is
when they do catch-up work, lesson planning, etc., the technical debt payback
of the teaching world.

(source: three parents/step-parents were school teachers)

~~~
majewsky
Or if you're in Germany, many teachers are running on temporary contracts that
always last for the school year, so they will be receiving unemployment
benefits during the summer break, and (hopefully!) get a new contract for the
next school year.

It's a great way to shuffle cost from one government budget (education) to
another one (unemployment benefits), and also a convenient way to get rid of
annoying parts of the staff.

~~~
knd775
Teachers in my mother's district in Virginia also work on a contractual basis.
However, they renew their contracts at the end of the school year even though
they aren't actually working and getting paid over the summer. As a result,
they are technically employed and ineligible for unemployment.

------
marssaxman
It's really quite simple: you assume it's all worthless, because that's how it
starts and that's how it generally ends. Even if it were going to be worth
something, you'd have been better off taking the money up front and investing
it however you wanted in the meantime.

But it doesn't really matter, because you have no control over this anyway.
All you have to do is decide whether the salary is high enough; the rest is
irrelevant.

Some people really enjoy playing the lottery. If that's you, well, knock
yourself out getting into the details of the options package! Just don't kid
yourself or make any serious life plans based on your hopes about that stuff.

~~~
aub3bhat
This can be applied to everything why bother making an informed decision about
choice of University or Spouse or anything else.

Your explanation is a self fullfiling prophecy disguised as if it was some
wise advice.

In reality employees can and should make informed decisions, this advice is
equivalent of covering ears and screaming bla bla bla.

Power is given to those who demand it. If you start with assumption of being
treated like meek, you are simply setting yourself up for a defeat.

~~~
lmm
If you walk into a casino you're going to lose money. I don't even know the
rules of any of the games and I can tell you that. Some situations are so
tilted in favour of one side or the other that it's not worth trying to
compete on that playing field.

Valuing the options at zero and demanding adequate salary without them is the
opposite of meekness.

~~~
aub3bhat
Rather than loudly proclaiming your ignorance about casions and options, you
should introspect.

I know several people who successfully negotiated better terms. Demanding
"adequate" salary and valueing options at "zero" are two seperate tasks. You
assume latter (options not valued at 0) implies former (salary not adequate)
its a statement about your risk averse world view, not a statememt of fact.

As far as meekness, loudly proclaiming that you are valuing options at zero is
great way of letting your co workers and others know of your level of interest
in the success of company. At which point if not meek you would surely come
across as contemptuous, lest the company suceed and your coworkers end up
better off than you.

~~~
throwaway729
_> I know several people..._

And for every person you know there are dozens of stories about people who
didn't even come close to recouping their salary differential. And those are
just the "successful" startups that had some sort of exit. So the risk is
(obviously) real.

 _> its a statement about your risk averse world view, not a statememt of
fact._

No, it's a (true) statistical statement that you're misrepresenting as a
categorical one.

 _> loudly proclaiming that you are valuing options at zero is great way of
letting your co workers and others know of your level of interest in the
success of company_

Does the VC who's investing in a profile of N other companies _also_ not have
much interest in the success of the company? I mean, if they _REALLY_ believed
in the success of the company, then why aren't they just throwing all N at the
company?

The only difference between the VC and the employee is that the employee is
providing a limited resource (time) that can't be split among N bets, while
the VC has enough cash to afford to make risky bets.

So it's entirely possible that the company has an negative expected value for
an employee and also a positive expected value for the VC (and founder, but
for different reasons).

~~~
etatoby
> _So it 's entirely possible that the company has an negative expected value
> for an employee and also a positive expected value for the VC_

Which is exactly the scenario the article is warning about: share dilution,
refinancing, and all those other strange terms, often rendering the employees'
options worthless over time (but not the VC's of course)

------
scandox
People who care about money will always have trouble understanding people that
don't care about money - and vice-versa. (Obviously, the context here is a
milieu in which everybody has enough for basic needs.)

It's all about head space. Caring about money is quite a binary thing: once
you engage with it, it's a huge commitment - intellectually and emotionally.
People who don't care about money understand that they're only inches away
from caring - and that the moment they cross that line their whole attitude is
going to have to change. That's why they're wilfully disengaged from these
issues. They don't want to set that process in motion. Money has a gravity all
its own - it sucks you in.

People who do care about money don't have a problem. Money proves its own
importance in a very material way. So the commitment always seems justified.

~~~
jfdk
I think this largely depends on how much money you are chasing and your
aspirations.

I care about money not because I want to have lots of things but because I
want the freedom to work on my own ideas (without selling my soul to a VC). A
certain amount of money early in life can greatly change your trajectory, for
better or for worse. It just takes discipline.

~~~
codingdave
That still needs to be balanced, though. As you get older, you'll lose time to
other things. You may get sick, injured, or die. There is no guarantee that
you will have a "later".

So find the balance - live enough to be happy with today, but work enough to
be prepared for tomorrow.

------
mosselman
Misleading title and premise: The author makes it seem as if something will be
explained for people who are not 'financially-savvy', but nothing is
explained. In fact it is made more complex. Which is fine, but still it was
kind of misleading. Solid advice to get financial advice nonetheless.

Can someone explain this part to my/some-of-us like I am five?:

"Which muppets advised them to spend hard-earned cash to exercise a non-
liquid, highly volatile financial instrument? There is no world where the
(relatively) small tax breaks involved justify the expected value equation,
given that Good Technology was nowhere near exit."

I have no idea what it says here.

~~~
senko
> _exercise a non-liquid, highly volatile financial instrument?_

Buy something that can't be converted quickly and easily back into cash (
_non-liquid_ ), and whose value changes a lot ( _highly volatile_ ). This
means if it starts to go down, you can't get rid of it fast enough and you
stand to lose a lot.

> _the expected value equation, given that Good Technology was nowhere near
> exit_

The value equation would be, the outcome ($) times the likelihood of that
outcome. So the outcome might be big, but the chance for it is perceived to be
small (given that they were nowhere near exit), so the expected value is not
very high.

Boils down to they spent their hard-earned cash buying something that might
lose a lot of value, is unlikely to be a big win, and that they, once they buy
it, are basically stuck with it. No wonder he disses the advisors (note all of
this is just explanation of what is said, without judging if his premises are
correct).

~~~
mosselman
Thank you for the explanation. Would 'buy something' in this case mean to
choose options over 'normal' compensation (salary)? Or were employees advised
to buy extra options in the company at some point?

Also, I thought there was a difference between options and equity and the
assumption I have heard some people have is that 'equity' is safer than
'options', but if I think about it now it seems as if options are just what
equity consists of. Is there a difference and does one consist of the other?
While I understand that I should probably consult Duck Duck Go on this some
more, I still ask seeing as you seem to be knowledgeable on the subject.

------
jondubois
Finance is evil. Day trading, investment banking, venture capital; they don't
produce anything for society, they just sit at the intersection of various
people, companies and industries and they capture big chunks of the money that
flows between them - They rely on information asymmetry and market
manipulation to do so; but 'information asymmetry' is just a euphemism for
'deception'.

Even startups which are doing well and generate profit tend to go on to raise
money from VCs - This sounds ridiculous; they don't need the VC money but they
raise money from the VC anyway because: 1. They need the connections and 2.
They need the tech 'media' to promote them with a headline like "W raises $X
millions from Y to disrupt/democratize Z!".

This highlights the fact that VCs have an oligolopy when it comes to economic
connections and the media and they leverage it for their own needs.

Also the fact that crowdfunding was essentially illegal for so long is also
scandalous - Not only do they hoard all important social connections and the
media but they also have a stranglehold on politics.

~~~
grinnbearit
Finance isn't evil; day trading, investment banking, venture capital are all
sharing information with the world and trying to move money to places where
its more valuable.

There is a case to be made about "negative externalities"[1] but talking about
the whole of finance as unnecessary is throwing out the baby with the bath
water.

[1] costs that aren't borne by the producer

~~~
wott
Valuable for what?

~~~
grinnbearit
Valuable for satisfying human desires

The theory is that people spend money on what they desire, and so companies
that generate more money satisfy more human values.

You will always find outliers and exceptions (caused by negative externalities
usually), but this is true in general.

------
wccrawford
>I find this lack of diligence infuriating. These intellectuals — much smarter
than me — imagine block chain technology for cryptocurrencies and how to cure
diseases, but don’t put in the effort to comprehend ownership percentages or
what a ratchet means in a down round. Why?

Nice victim-blaming here. Why don't people spend tons of effort on a lot more
things? They haven't got the time and don't want the stress. Don't blame them
for being trusting, loving souls. Blame the company for screwing them over
with over-complicated rewards schemes designed to screw them from the start.

~~~
lllllll
This.

------
sharmi
If anyone is interested in learning more about compensations and about salary
negotiations, here are some previous discussions on Hacker News.

Open Guide to Equity Compensation (github.com)[1]

Salary Negotiation (kalzumeus.com)[2]

Ten Rules for Negotiating a Job Offer (freecodecamp.com)[3]

An interesting anecdote about negotiation [4] [1]:
[https://news.ycombinator.com/item?id=10880726](https://news.ycombinator.com/item?id=10880726)

[2]:
[https://news.ycombinator.com/item?id=11830598](https://news.ycombinator.com/item?id=11830598)

[3]:
[https://news.ycombinator.com/item?id=12197795](https://news.ycombinator.com/item?id=12197795)

[4]:
[https://news.ycombinator.com/item?id=11552780](https://news.ycombinator.com/item?id=11552780)

------
cloudjacker
> So talk to the CFO about the numbers — when you’re hired, when it’s
> fundraising time, and any time in between.

Hahahaha, oh man so here's the part where I just dump all my emails about the
answers I have gotten back from CFOs over the last decade:

\- "common stock shareholders aren't privy to financial details"

\- "we don't share that information"

\- "I discussed it with the board [consisting of myself] and they decided not
to release valuation information"

\- "The stock options are just to retain employees!" and other awkward non-
sequiturs that are distinctly not a financial statement.

So do ya'll want to unionize or nah, I have a feeling Peter Thiel and
Andreesen would totally support it and we already make enough to make union
dues negligible.

~~~
JumpCrisscross
> _common stock shareholders aren 't privy to financial details_

Delaware law lets you make a Section 220 request [1] to inspect a
corporation's books and records for a proper purpose, _e.g._ to identify
potential buyers and sellers or for investment valuation purposes.

[1] [http://www.pepperlaw.com/publications/what-every-
corporate-c...](http://www.pepperlaw.com/publications/what-every-corporate-
counsel-should-know-about-stockholder-inspection-rights-2009-11-17/)

~~~
icebraining
(Noob here) Don't most startups offer stock _options_ and not actual stock
nowadays? Is the owner of options classified as a stockholder under the law?

~~~
MichaelBurge
Even if not, couldn't you exercise a single option before making your request?

------
riskneural
Adam Smith's five reasons to get paid more:

1\. Skill. Over the long run, jobs that require higher skill will attract
higher wages, or else people won't bother to spend the costs acquire the
skills for the job.

2\. Accountability. All equal, you'll take the job without personal
consequences when things go bad.

3\. Wholesomeness. Undertakers get paid more. Butchers get paid more than
bakers. If it sounds cool at a party, expect to get paid less. Supply and
demand.

4\. Job security. Essentially, you need a higher wage for an unstable job than
a stable job. Risk premium.

5\. Physical danger. Yes, a lumberjack will get more danger money than a
programmer. However, you'll demand a higher wage for a programming job with
crazy hours and the only food in the building is a snack machine with cinnamon
buns which have no expiry dates.

------
z1mm32m4n
For those wishing to take up the author's claim of understanding their
compensation, Brian Krausz gave a great talk about this subject, titled
"Demystifying Startup Job Offers"

[https://www.youtube.com/watch?v=y13tqllSros](https://www.youtube.com/watch?v=y13tqllSros)

Worth watching if you're looking for a nice starting off point for some of
these areas.

------
exelius
In a capitalist system, you actually have an _obligation_ to get as much of
the pie as you can. Fuck being seen as greedy; greed is the entire basis of
capitalism. This doesn't mean resorting to illegal / unethical measures; but
it does mean always negotiating to get a better deal. This goes from the top
of the economy all the way down to the bottom. I'll admit it can be hard when
you don't have leverage; but you also have a stronger incentive to fight than
some VC or PE who is really just playing for points.

More companies should really encourage this with their employees and arm them
with the information they need to negotiate effectively. True; compensation
would probably rise, but so would job satisfaction (and its attendant effect
on employee turnover -- important in knowledge work where recruiting costs run
upwards of $60,000-100,000 per hire). It's probably a wash in the end dollars-
wise, but it makes it a lot easier to keep high-performing teams together.

If you don't want to be greedy, give all your money away to whatever charities
you want after you earn it and live a modest lifestyle. But the whole system
functions better when _everyone_ has the ability -- and the expectation -- to
fight for the best deal they can get.

~~~
blahi
Self interest is the entire basis of capitalism, not greed. You are not greedy
for defending your interest, i.e. getting paid as much as you can.

~~~
exelius
Exactly my point. Greed is a false construct.

------
justinlardinois
> one of the reasons I chose to work on Wall Street prior to joining a start-
> up was to fully grasp the financing terms of the companies for which I would
> later work.

And this is also the reason why I'm very wary about equity. I'd certainly want
to work for a company that's going to do well financially, regardless of how
I'm being compensated, but I have only a layman's understanding of business
and finance. I'm simply not equipped to judge the financial health of a
potential employer and how much its equity is really worth.

~~~
zatkin
Then you should educate yourself. Take a class or two at your local community
college or do some research online. It's extremely vital that you have a good
understanding of the financial world we live in. Knowing a thing or two about
some of the basics will help you in the long run, regardless of whether it's
related to compensation or equity.

~~~
justinlardinois
Is that really enough? When I accept equity as compensation, I'm essentially
investing in the company I work for. People who invest for a living typically
have more education on the subject than a handful of community college
courses.

------
ihsw
Honestly what's wrong with just paying people a lot of cash? Why the swindling
with securities?

Because that's all it is -- look at a 10 year timespan between two developers,
one making cash and one making cash+options, and you will see a difference in
how much they take home.

Stock options are all smoke and mirrors, nine times out of ten.

I'm all for giving people more financial opportunities that integrate with
their lifestyle and risk tolerance but come on, people are being ripped off on
the promise of "options" and gauging how much "faith" someone has in a
company. Screw faith, just give me cold hard cash!

~~~
jasode
_> Honestly what's wrong with just paying people a lot of cash?_

The context of the blog post is "startups". Startups without significant
revenue _don 't have_ a lot of cash to pay high salaries.

Another reason for stock compensation is to tap into the power of incentives.
Hopefully, the potential equity upside attracts employees who think their work
contributions can boost the value of the company (and hence their stock
options) rather than mercenaries who just want a paycheck. Paying with 100%
cash doesn't easily differentiate those 2 groups.

~~~
stevenwiles
> Hopefully, the potential equity upside attracts employees who think their
> work contributions can boost the value of the company (and hence their stock
> options) rather than mercenaries who just want a paycheck.

It's hard to believe companies genuinely want this when offering 0.025% of
common stock to your early engineering hires has become common practice.

~~~
jasode
_> offering 0.025% of common stock to your early engineering hires has become
common practice._

Well, you have to add extra information to that 0.025% figure to determine if
that seemingly "low percentage" of equity became decent money.

As an example, it looks like Chris Cox, an early 2005 hire of Facebook[1] and
now Chief Product Officer got ~0.025% of Facebook stock. (~600k of 2.5 billion
shares.) He started unloading some of them in 2014 (2 years after the IPO).[2]

That 0.025% in 2016 now worth ~$77 million.

Of course, not every startup will become a Facebook with a market cap of $350
billion. So instead, let's say we can work backwards from a "nice" target
number such as $5 million. For 0.025% stake to be worth $5 million, the
company has to grow to a $20 billion valuation. That's still a big number but
building a company worth multiple billions is an aspiration for many startups.
The pontential employees have to consider if the "lottery tickets" with a
payout of $0 to millions is worth the lower salaries.

If a startup sets aside 10% stock for employees' pool, have other companies
proven that you'll get better results by granting more than 0.025%? Should
they have given Chris Cox 1% so other subsequent employees get less % or none
at all? Lots of potential game theory questions to ponder.

[1][https://en.wikipedia.org/wiki/Chris_Cox_(Facebook)](https://en.wikipedia.org/wiki/Chris_Cox_\(Facebook\))

[2][https://www.insidermole.com/insider/cox-
christopher-k/transa...](https://www.insidermole.com/insider/cox-
christopher-k/transactions/?page=3)

------
tn13
Forget about equity, at least get the salary part right. Keep interviewing to
check how much the market is willing to pay you and you will be surprised to
know that "loyalty" does not pay much in America unless the employer is
willing to offer you substantial amount of money to spend like 4 years at the
company.

------
Xyik
Let's be honest, the only reason companies aren't transparent about these
things is because of investor/founder greed. Whether or not the numbers are
'fair' isn't even relevant until employees fully understand their
compensation. It's basically like how landlords in SF take advantage of the
housing market by unnecessarily raising rent to absurd levels just because
they can - it's the same with investors. They have the money so they try and
scalp those who need it under the guise of taking on risk. In reality, if an
investor lost the 10M he/she invested in a company, it probably wouldn't
change their life at all.

------
nibnib
I don't understand most of the financial terms used in this article. Where do
I start?

~~~
uiri
I hope the following is helpful rather than confusing - feel free to ask any
clarifying questions. Also, I will preface this with the fact that I am an
engineer and not a finance person. I may be subtly wrong on some points and I
am happy to be corrected by those with more knowledge on these topics.

Liquidity preferences - Also described in the article as "investors escape
safely on Preference stacks", investors usually have terms which state that
when the company is sold, they get paid first so that they can at least recoup
their investment before anyone else gets paid. Usually they get paid again
with everyone else, resulting in a "double dip" into the sale proceeds.

Reverse-merger IPO - this is a rare (for tech companies) deal structure where
private company A merges with public company B. The resulting merged company
is now publicly listed because company B has already gone through the IPO
process.

Dilution - described in the article as "over-dilution" and "dilutive
financing", if there are X shares of a company and you own Y shares, then you
own Y/X % of the company. If the company then creates Z shares to sell to
investors, you own Y/(X + Z) % of the company. The difference between these
percentages is dilution. Often, existing investors have anti-dilution
provisions. They are able to buy additional shares in the round up to their
existing percentage. Founders and employees usually have no such luck.

Ratchet in a down round - Admittedly, I don't know what a ratchet is. I would
guess that it is a protection of some sort for investors from a down round and
thus bad for founders and employees.

Non-liquid - (nearly) impossible to sell

Highly volatile - a plot of price over time looks like a rollercoaster

Anti-dilution provision - see the latter part of "dilution" above

IPO protections - Also have no idea what these could be. I would guess at
something to protect investors who invest at a high valuation where the public
valuation is lower.

409-A pricing - How the shares are assigned a value for tax purposes

~~~
nibnib
Thank you. The jargon seems to be the biggest stumbling block here, the
concepts make sense. If there is a "Finance for Hackers" out there I would
love to read it.

~~~
cLeEOGPw
"Finance for Dummies"

~~~
nibnib
A better idea.

------
hiram112
This is a good article, and the same thing could be said with regard to
offshoring, H1Bs, etc.

Very profitable companies have gotten away for years with the tired argument
of not enough talent. It is easy for engineers to fall for the line, since it
pushes our egos in the right way: only really talented people can do what we
do.

The truth is, tech companies are spoiled. They all want the top 5%, but don't
want to pay the premium. And they've found that since they can't always get
these 5% for cheap, they might as well get the bottom 50% for a discount via
H1B indentured servants.

I like software engineering a lot. But the older I get, the more I know that
it is a dead end, and I'm preparing my pivot. Not because there isn't a demand
for software, but simply because the tech field is full of naive and
professionally weak workers that allow the whole industry to be exploited far
more than other professions.

Globalization, offshoring, etc. is not something that can be easily countered.
Even lawyers, journalists, and nurses - typically very politically savvy
professionals - have not been able to counter it 100%.

But tech workers are really at the bottom of the barrel as we not only lose to
offshoring, but also allow ourselves to be arbitraged and later replaced by
foreign workers in our own countries (from what I've seen, Western Europe is
catching up with the US with its 'blau karte' and other schemes).

~~~
GFischer
I take offense with " the bottom 50% for a discount via H1B indentured
servants."

There's probably a mix of talent in H1B visa workers, but I know several and
they're among the top talent in the U.S. Some H1B visa holders have gone on to
found multibillion-dollar companies.

I don't live in the U.S. and don't face H1B visa competition (we do have
Venezuelan and Cuban and Spanish engineers coming here to Uruguay so something
similar), but it shouldn't be seen as so black-and-white. They can help grow
the pie, they're not out to take a slice of the pie from native-born
engineers. Maybe you should help them negotiate better rates, or a better visa
that allows them to do so.

------
dboreham
One of the cases where jwz is spot on : it's a lottery ticket, nothing more.

~~~
20yrs_no_equity
Except that you can pay $1 for a lottery ticket with long odds of a $100M
return, here you are paying $70k for a $1M lottery ticket with equally long
odds of return.

~~~
signa11
> ... here you are paying $70k for a $1M lottery ticket ...

care to elaborate a bit on how you got that ? thanks !

~~~
ryandrake
If the difference between what you can make in total compensation at
BigCompany and your salary at Startup is $70K, then you're essentially buying
a lottery ticket for $70K... PER YEAR.

~~~
20yrs_no_equity
...and if your options are for %0.1 of the company, they have to be a unicorn
for you to make a million bucks (assuming that $1M is "lottery ticket" paying
off.)

------
codingdave
There is a bigger picture than money. I know I could have more wealth. But I'm
pretty happy with my life, despite not having maximized my income and
investments. I have enough money to pay my bills, enjoy my life, and still
have enough extra to have the first-world problem of where to invest it. Would
having focused my energies on making even more make me a happier person? Or a
better father to my kids? Doubtful.

------
Androider
Startups give stock options because they feel they have to in order to attract
talent. The startups can't compete with Google/Apple/Microsoft when it comes
to the base salary, they simply don't have the cash or revenues to do so yet.

But what if the startups offered something else that most of the big companies
can't or won't? How about 100% remote work, real work life balance (less than
40h weeks), 4+ weeks of vacation out the gate, 4 day weeks during summer (like
Basecamp) etc. Basically, given conflicting choices, always optimize towards
what makes a great place to work. Would that attract top talent (not
necessarily only the SV talent)? What if there were no stock options involved
at all, would that make you less psychologically invested in the company?

------
clifanatic
I think of stock options and the like as lottery tickets. And I never win the
lottery. If I'm offered stock options, I'll gladly take them, but I want real
money, too.

------
20yrs_no_equity
So, I've been working for startups for a long time. Finally I've reached two
"rules"\- \- Be a founder \- Restricted Stock Units or Preferred Shares are
the only way to go.

Options are way slanted against employees. If you have a market value of $150k
and you take $80k in salary, you're giving up $70k of real money each year.
The value of your options in most situations that work out well (Eg: base
hits) are going to be less than that (when accounting for risk).

If you get fired in the 11th month, you've lost about $70k and get nothing.

IF you get fired in the 13th month, you have 1 year and one month vested, and
90 days (most likely) to spend real money to turn those options -- which
you've already paid for by giving up market salary-- into something valuable.

Options are basically a raw deal, and I'm not even getting into liquidation
preferences.

IF you give up real salary of $70k a year, that is the same, literally, as the
angel who puts $70k into your A round.

You should be getting the same terms as the A round in that case.

That you don't is part of how the game is rigged. You should vest almost from
the beginning.

I think 90 days of trial period with a cliff (Eg: you vest 90 days on your
91st day then every 30 days after that you vest another 30 days) is ok. You
don't want the cap table to be too complex.

Yes, Venture Capitalists wouldn't like this. Of course, because it's fair
rather than tilted towards them.

I know this won't become popular because engineers are too easy to manipulate.
They read some self serving VC blog about why liquidation preferences are
perfectly acceptable and they buy it.

But if you're there the year before the VC you took a lot more risk than they
did. You're investing your real salary that you're not getting and could be
getting by working for a fully developed company, while they are investing
other people's money.

I've heard of programs called Slicing Pie and the like that make this easy.

Why you want to be a founder?

Well, after over 20 years working for startups, I have spent al to of time
asking CEOs and CFOs specific pointed financial questions. I have gotten the
runaround from them, and that's a flag that makes it easy to pass on the
company. But when I haven't gotten the run around, way too often what they
have told me was false.

Many times the CFO when asked for the number of authorized shares or the total
shares on a fully diluted basis would give me some BS number. I don't know if
he didn't actually know. (Many times the startup doesn't even have a CFO at
that point.)

Many times I've been told that options accelerate, on acquisition, only to
find out that the founders deal was that way but they wrote a new option plan
for later employees that didn't have as nice of terms.

Just recently I saw a plan that gave the "compensation committee" the ability
to do _anything they wanted_ including cancelling all outstanding options
grants, in the event of an acquisition.

I really don't know who wrote that document but I think it was one of the
investors, and the "executive management" of the company never actually read
it. They didn't believe it said that when I pointed it out. (Who am I, I'm
just an engineer (this time, been a founder in the past, but I thought this
company had reduced a lot of risk and so the tradeoff was worth it.)

So, another piece of advice- work for a company where the founders are hard
asses when it comes to investment and terms. These people didn't even read the
stock option plan (and weren't going to give it to me, despite requiring all
of us employees to sign an agreement agreeing to its terms, because our CFO
didn't realize that there was a separate plan document- he kept saying (or
thought) that the agreements were the plan!)

This kind of lack of attention to detail is very common, in my experience in
startups.

Working for a startup that fails is pretty lame, but working for a startup
that succeeds and you get screwed out of the upside is much, much worse.

~~~
ryandrake
I think a main take-away can be: If you're interviewing for a start-up and the
founder is cagey about the company's financials, their investors' stakes,
their liquidation preference, overall what the cap table looks like, the
number of shares outstanding, etc. that should be a big red flag.

~~~
20yrs_no_equity
A founder should know those things cold.

Also all compensation promised you during interviews should be in place within
60 days of joining. I've seen companies drag their feet for months, only to
come up with an option plan significantly worse than the deal that was pitched
to you (which the founders and early employees got. And thus you should have
got, but they decided to be greedy, and then it took 6 months to come up with
a plan.)

"There is only a single liquidation preference" \- that's not ideal, but it's
ok. "I think there's just one liquidation preference" \- that means there are
probably two, only one of which is called an LP, and the guy doesn't know
terms well enough to avoid getting screwed in a liquidity event.

Of course all of this is less significant than the analysis of whether you
think there ever will be a liquidity event or not... but having been around a
couple decades and gone thru a couple of them, the founders made out well,
even though they got screwed, and the employees didn't make a good risk
adjusted return on what they gave up.

Of course, I didn't work for any unicorns. In that case the results are much
better.

Problem is that options plans and even employe compensation plans at startups
are built to only make sense assuming the company is a unicorn.

Most startups are not unicorns.

~~~
ryandrake
Yep, I've worked for quite a few companies, some offering real stock and
others offering options, and I've only ever made any money (and only a very,
very small amount) with real stock. Unless you're in one of those rare
unicorns, your options are likely worthless.

------
koonsolo
"In business, you don't get what you deserve, you get what you negotiate" \-
Chester L. Karrass

------
ausjke
"Please talk to a financially savvy individual to avoid missteps that could
impact your long-term wealth." \-- this strikes me, everything said makes
common sense, and most engineers will agree, but the difficult lies in this
sentence, how/where to find this resource _easily_ while working 7*24 on
startups?

It is extremely difficult to find a real person, or a nice website, to make
the ownership/stock-options/shares/etc straightforward and easy to follow,
those jargon/terms are made to confuse any ordinary typical person.

I wish there is a website providing such service, say, charge $100 a hour to
analyze my financial situation thoroughly or something like that. And no, I'm
not saying a financial professional from Fidelity that is trying to sell me
some funds.

------
totally
I understand that a thing is worth what someone will pay for it, but to
balance that out a bit, no conversation about compensation is complete without
consideration of actual needs.

When colleagues, whose compensation is as wildly out of proportion to their
needs as mine is, complain that they're entitled to more, it's at best a
negotiating stance and at worst a black hole of insatiable greed.

Obviously this is some game theory mojo, and we'll never get everyone on board
with it, but imagine for a second a world where everyone isn't vying for
"more", but for "enough".

In the zero sum game we have here, compensation becomes a moral issue.

------
westoque
Not all people are motivated my money. Some people really just don't care
about their compensations. They are just motivated either by the idea, the
people, the leader, the industry, etc.

~~~
dnh44
Even if one is not motivated by money, one should at least still have the
self-respect to make sure they are being fairly compensated for their time.

------
gtycomb
> I would argue that plumbers, sewage workers and farmers should be paid
> higher than programmers.

Then, of course, the plumber et. al. should consider moving into programming.
No one is stopping them from training themselves and learning what it takes to
make the switch.

The programmer getting $80,000, who developed a key technology to start a
multi-million organisation, if she finds she is not compensated appropriately,
should consider teaming up and starting something on her own probably.

------
discordianfish
I don't get why everyone is criticizing this article. I think the main point
is simply: Understand your compensation. And this _is_ important. For
instance, it makes a huge difference if you're allowed to sell your shares on
the secondary market or not. That way a friend-of-a-friend made a bunch of
money while other employees who joined a few month later can't and probably
won't ever be able to sell those shares at a good price.

------
sisk
I've seen bite-sized blog posts and conference talks on the subject, yet I've
never found a truly thorough resource. Can anyone recommend a book or two?

------
j_jochem
Having seen these types of articles crop up a number of times now, I've
started wondering if the issue of preferred stock vs. regular stock vs.
options is something that is specific to how stock ownership works in the US
or if this also applies to other countries.

In particular, I would be interested in information on stock ownership in
British ltds and how things work in the EU in general. Can anybody with
experience in those markets clue me in?

------
anupshinde
Couple of interesting quotes that resonate with this.

1\. "Company doesn't care about you (employee), and you shouldn't care about
the company"

For few years this resonated in my head and I disbelieved it for obvious
reasons. Its just demotivating. But after more than a decade I know this is
completely true.

2\. "Customers don't care how good the code is"

True. As far as the functionality is reliable and acceptable quality. Good
code is only a value-enabler.

------
kriro
To provide a counterpoint...do I really have to care all that much. I know
many people that obsess over money but quite frankly I feel like it's mostly a
hygiene factor. As long as grave injustices are avoided interesting work
trumps interesting compensation (imo)

------
arca_vorago
I think the main thing that most IT workers fail to understand is employment
contracts or agreements. Far too often a person needs a job, so too quickly
agrees to terms that end up biting them later or causing resentment.

I'm reminded of the guy who outsourced his job to china and just surfed reddit
all day. The problem is indicated of a larger issue not really talked about
though, and thats the destruction of the middle class and increasing income
inequality. I have started heavily referencing cost of living statistics when
trying to understand macroeconomics, and when, in one of the most insulated
areas from the 08 crash in Texas, with some of the lowest cost of living, and
49k is the living wage, which is almost impossible to get, I see a large storm
brewing over the country that hardly anyone else seems to notice.

The true bottom line is that employers have far too much power, and employees
need to start expanding theirs, before the neofuedal state kicks in fully and
shit gets really fucked.

To give a quick example of bad compensation, I used to contract for some of
the best law firms in town, and I got to know the secretaries and paralegals
pretty well. well, come to find out, apparently the office managers from the
various firms call each other to price fix salaries and compensation for them
so they dont want to leave etc. Its blatantly illegal, but what are they gonna
do, sue the best lawyers in town who are "good christian men" and "paragons of
the community"? So most of them just grin and bear it.

Not to mention the fact that some of them bring in well over 4,5,6 times their
salary in client billing themselves (eg not their attorneys) yet they still
get a measly 1k christmas bonus.

Econimic warfare is real, and as W Buffett said, the rich are winning.

------
samsamuels
Far too many people out there are looking to make a buck on someone else's
hard work than their own.

~~~
dnh44
You can't make lots of bucks solely on the basis of your own hard work. The
whole point of being an entrepreneur is to make a buck off of someone else's
hard work in addition to your own.

------
wiz21
I think it's fair for a programmer to evaluate himself (and, surevaluate
himself) just like start up founders, investors, evaluate their start ups when
they try to sell them...

I think I'm worth millions right now. Hire me, I'm such a huge opportunity !

------
kelukelugames
Complain time!

Before I joined my last company, the recruiter said my shares were worth $1
each. After I joined I found out they were 50 cents per share. I don't think
the recruiter intentionally mislead me. Probably lazy and uninformed.

------
avindroth
I don't feel like going to Wall Street to learn about all this.

I am sure there is an element of experiential component, but which books or
resources can I peruse to get myself acquainted?

------
k__
This bad and good.

Bad because people who don't think about this will probably get less money
than they deserve.

Good because everyone can try to get as much as possible without being a 10x
engineer.

------
romanovcode
I don't like the tone that equity is a "compensation". In no means it's a
compensation, it's not even a bonus. It's just something on top.

~~~
victor9000
It's a lottery ticket. You say thanks when you're given one, but you don't use
it to justify a lack of real compensation. Because in the end, you can't pay
bills with lottery tickets.

------
Artlav
In simple words, you should work for money/salary, not for promises/equity.

This way you'll always get a fair compensation, regardless of what happens to
the company.

~~~
qudat
Low risk, low reward. If everyone thought this way then entrepreneurs wouldn't
exist

------
warfangle
On the other hand, how many companies stonewall potential new hires that try
to perform due diligence on the options package offered?

------
swiftisthebest
Is there a MOOC or other similar teaching system that I can learn this type of
information? Thanks!

