Over the next few months, while the company size went from 6 to 20, and the board were organising the stock options scheme, I was still highly motivated by the favourable options which had yet to be sorted out. A year in, and I was given a very very small fraction of the 11% option pool, which would amount to less than 0.1% of the total shares, which was also subject to dilution. At this point I had all of the speculation previously made by my superiors denied, my importance to the company was downgraded, and I struggled to negotiate a raise in salary that would bring me up to what I'd call an average salary.
This whole procedure was very demoralising, I would have been happy with no options and a decent salary to start with, and all of the speculation of how many billions the company would get acquired for in a years' time would not have bothered me in the slightest. After all, we had no customers, had not launched a product, and I was a key developer. Needless to say I left shortly after to start my own company.
When I left, they offered to 'do something' about the options and give me the raise I wanted, but at that point for me the damage had been done, and I no longer had the ambition to work there. I didn't execute any of the options that had already vested, and used this £300 to start my business.
From my own experience and speaking with a lot of other startup employees in the UK, I believe we care more about the starting salary, and absolutely have to treat options as a bonus. Not only because of the dampened IPO/acquisition outlook in Europe, which i think many startup employees are unaware of, but because startups are a smaller part of our economy. In London for example, 'Tech City' is right next to THE city, where my friends work. You've got guys earning nothing at a startup, working and meeting for drinks, and living with friends who work at banks down the road. I would imagine the US startup scene feels much more like a microcosm, and because we are yet to have that level of separation in culture and circles we socialise in, the difference in lifestyle a salary gives you is a lot more noticeable.
I regret not adapting this mentality from the start, and when we hire our first employee, I will certainly make sure the reason they are taking the job is not the millions they are guaranteed to make in a few years' time.
Strangely enough, saying that one line has changed a conversation from "Hey, wanna work for my startup?" to "Hey, wanna be CTO/cofounder at my startup?"
There aren't a lot of cofounding opportunities when most of your time is spent doing classes at uni.
This was a breach of contract - just not an easy one to enforce
Even in the great local success stories IPO's are not the goal, and the employee-stock of a successful company is practically useless, as you can't really sell it when you want to (no buyers unless the company itself is sold) and there will be no dividends in the foreseeable future, as all profits are reinvested in growth.
0.1% in a billion-worth company should be a life-changing financial event, winning the "startup lottery" by working your ass off to build a great product from nothing. But what good is it if you can't use it to buy a car or a house? It's just paper.
Now freelancing for startups, that's a whole different ball game. All of the realistic benefits, none of the risk.
My company was selling primarly to startups until the 2007 crisis, it was no intentional but very profitable: we were benefited by companies which changed their products a million times without any profit. After the crisis,in 2009/2010 we ended up having established companies as cutsomers. One of the reason is that less outsourcing and less investments are made by startups.
In the current extremely crunched market you really can have the best of both worlds. Market salary and equity.
Many option plans also seem to have clauses where you can't keep them if you leave the company, making them all but worthless except for companies that exit quickly. As a result I'd almost only ever accept real equity that vests in some amount after 1 year or I don't see how I'm really getting anything at all.
The way I'd like to see it positioned is, you give me a sensible stake in the value we're building in trade for a reasonable expectation (1-2 years) of how much of my time you need to build some value. Otherwise just pay me the cash value you think the equity is worth and I can invest it in something real. I'm not going to be remotely motivated by you just handing me a lottery ticket.
That's still plenty complicated in many countries - Italy, for instance, although we did manage to improve things just a little tiny bit:
Employers do not have any incentive to share a positive future when (they perceive that) the employees do not share a negative present.
In Spain salaries are often raised by collective bargaining. I don't know how much an effect it has on software developers, but the law is intended to raise the minimum salary for junior developers thus reducing the possibilities for a consensual agreement on a low salary.
Similar for holidays, working hours, etc.
I said that compensation is affected by other forces than supply and demand (market value), so that the minimum compensation is higher than it would be at market value in that country, not that it is higher than in the US.
Related to that, the southern European countries don't have individual control over the currency, so prices are higher than they would be if they were in control of the Euro. Salaries have been raised by law (civil service, collective bargaining, state pensions) in order to match prices. As a consequence, those salaries do not correspond to productivity, so employees are expensive, which pushes unemployment up.
If you employ people in Italy a main problem will be that your employees have to pay European prices for food and clothing. In order to prevent what many consider abuse, there are laws protecting the minimum compensation you have to offer to them. The workaround for that is not share options, but the black market.