There's just a few ground rules:

1. Is the company giving options? They better have a 7 year exercise window (https://triplebyte.com/blog/fixing-the-inequity-of-startup-e... ); if not, don't work there.

2. Is the company giving RSUs? Great; just realize you'll be paying nearly 50% taxes when they convert to shares. (and make sure that the company will actually pay your taxes by buying back shares when they do convert!)

3. Is the company super early stage? Your options are probably worth nothing and probably will amount to nothing. But if it costs almost nothing to exercise (strike + taxes), you might as exercise them now.

You pay taxes on RSUs not at vesting, but when they settle into shares. This might be shortly after vesting; it might be delayed until an acquisition/IPO. (generally it is delayed for companies far away from IPO).

The delay causes multi-year income to be batched into a single year. With a progressive tax system, that results in your money being taxed at a rather high marginal tax rate: If you have a substantial amount you vest a year, it's easiest to use the highest marginal bracket as a conservative guess of what you'll be taking home. In California, that's somewhere on the order of 48% combined state + federal.

As I understand it, you have to pay tax on the difference between the option price and the value at the time you buy them. So if you have a bunch of options to buy at $10 per share, and the company grows to $90 per share by the time you quit/have to buy your shares, you're taxed on $80 a share. Remember, stock in a private company is worthless until you find a buyer, which is one of the reasons the people referenced in the article had to go into debt to exercise their options.

30% of a large amount of imaginary money ends up causing a gigantic tax bill, paid in actual money.

https://www.collinsbarrow.com/en/cbn/publications/taxation-o...

You can however use the Allowable Business Investment Loss deduction to deduct half, and if you hold the CCPC shares for two years, you can deduct the other half. So the danger zone is the two year window after exercising.

Edit: Can someone point me to IRS docs? or blog explaining?

Reminds me of California's debt crisis and "Hey! How dare you turn down state IOUs as payment? These are every bit as good as cash. ... Wait, you want to pay your state tax bill with state IOUs? Get that crap away from us!"

For regular (Non-qualified) options, current value - strike is considered ordinary income when you exercise.

If you have NQOs, this tax always happens.

This could be fixed in reconciliation, but with the way things are going, I wouldn't be surprised if the house just votes for the senate bill.

https://www.washingtonpost.com/news/wonk/wp/2017/11/30/what-...

Also wasn't there a further amendment to that after lobbying to exempt private company shares from this? I recall fred Wilson writing something to that effect.

Could be worse; in Ireland I’d pay a little over 50% on my options if I exercised them. Which is why I don’t.

I certainly wouldn’t be interested in taking a job in a private company where options were a significant part of compensation.

EDIT: Just noticed from the article, Uber employees had to exercise within 30 days. Wow. 7 years seems to be normal in this country.

https://medium.com/@michaeldeangelo/unlocking-the-golden-han...

As if options had a value.

$100,000 in options sounds great but if it’s .01% of options then you’ll have to be part of a monster IPO or sale to get a windfall.

Always insist on the % amount. Most founders will try not to share it.

Also options are a % increase in share price play, so $100,000 strike price can at least give you some information wrt how much $ you can make if the per share price of the company triples, etc.

It's not always better to know % and % only. Let's say you get 1% options of a company valued at $10B. Options are priced at the preferred price, no discount. The company IPOs at $10B. Did you make $100M? Nope you made $0 so far!

Perhaps. But if a company will not give you a percentage of ownership and expects you to accept this as compensation, you should quit. Full stop.

If the company won't tell you how to fairly evaluate your options, they're operating in bad faith, and should not be rewarded for their sleazy behavior.

The important principle, though, is that they shouldn't be hiding anything from you. If the company won't even tell you the percentage your shares represent, you can't trust them to do anything else.

From a financial perspective, what you want isn't $1,000 worth of options, but a _risk-adjusted_ $1,000 worth of options. Which means in all likelyhood, more like $100,000 worth of options.

Oh, the company doesn't want to give you that much? Well then, "Show me the non-risky money."

But I don't think managers understand that while options might make people stay while things are going well, they make them flee (or worse, stay and become resentful) when things are clearly not going well.

If you reward someone for their service you have to do it right or don't bother at all. A reward that loses its value, is delivered late, or requires the recipient to nag you constantly to deliver at all, has negative value for the person. 'Thanks for nothing' is not something you want to hear from an employee. It crushes motivation.

I would never accept options from any startup. I will only accept shares if I know and trust the founder(s) or if there is a way to cash out early.

The last startup I worked for full time for 2 years added a clause to my contract which allows me to sell my shares as part of each capital raise that they do.

Over the past few years since I left, I've had two opportunities to cash out. The last one looked pretty decent but I trust the founders so I decided to hold. It's nice to have the choice.

If the company wants to "align incentives" with employees, then they should offer some kind of revenue/profit sharing.

instead, potential startup employees can educate themselves a bit on how options are a risky derivative investment in the startup you work for. there's really no need for the bitterness in your post once you can properly account for them (they're like lottery tickets that are only mostly, but not completely, up to chance).

if you know some quantitative finance, you can (approximately) value the options (binomial and black-scholes are commonly taught in b-school), but it's really easy to miss important valuation factors that will throw your valuation way off.

for example, preferred shares bought by investors could have (very unfriendly) participating preferred clauses that discount the value of your common shares. you can value that, but you'd need to be pretty good about forecasting the future value of the company to get it right.

a simpler approach is to do a rough back-of-the-envelope calculation like this: i've noticed (completely anecdotally) that startups will give you options at the current valuation that if the company has a good outcome, will net you about 1-5 years worth of salary in the end. if my salary is $100K and i believe the chances of this startup succeeding is 20% (this is the hand-wavy part), my options are worth $20-100K in 5-7 years when the startup exits.

or if you're risk averse, you'll completely discount the value of the options in comp negotiations. that's different by the way from scornful statements like "options have no value" where you're completely surrendering your agency in the matter. in this case, you acknowledge your risk tolerance and account for it.

You're missing the constant drumbeat of "options will make you rich! Work 80 hour weeks, sacrifice your health and relationships, get paid well below market rate, join our startup!"

The entire VC industry is focussed on misleading people like this. One of the reasons for ageism in Silly Valley is that experienced engineers can't be suckered like this.

> if you know some quantitative finance [...]

> a simpler approach is to do a rough back-of-the-envelope calculation [...]

You're looking at this as if you're calculating the odds of winning the lottery and doing backwards math to figure out the viability. That's only half of the picture.

There are a lot of circumstances that do happen and can't be put into a math equation.

1) If a company is striking gold and you have significant options they can fire you before the rest of your options vest to get more stock back into the pool. See: Zynga

2) If the company needs to grow fast but doesn't have enough stock to offer new employees they can ask you to relinquish stock back into the pool to help hire more employees. If you refuse, go back to #1. There was a good post on HN where someone was being strong armed like this.

3) Dilution will happen. You can't account for how founders and investors will dilute things because there's a lot of tricks that can happen here.

4) At the end of the day, you're counting on the company to go public or be sold. The problem is that founders turn down huge acquisitions all the time, only to have the company -- and your stock -- become worthless. See: Digg and the would-be-millionaire employees that ended up with fat debt from exercising.

There's plenty of ways that your stock can go bottom-up that have nothing to do with the success of a company.