I had a friend lose almost everything in the dotcom crash by being solely invested in his employer.

His advice exactly mirrored yours

I think it's very poor idea to own stock in your employer. This famously is highlighted by Enron encouraging it's employers to invest their retirement account disproportionately in enron stock. The employees that did lost their job and their retirement account at the same time. [0]

It's probably a less bad idea to own stock in a company you control on a managerial level (C level or on the board).

[0] https://www.nytimes.com/2001/11/22/business/employees-retire...

Even for CEOs and board members diversification is a good idea. They are just limited in how much they can diversify because it looks bad if they sell too much of their stock.

Honestly, it depends. Generally you want to divest, but you would have been an idiot to divest Facebook stock, for example.

If you believe it's a great investment (which you might -- given you work there!) then keep the money in. You might understand the business better than other investors that are not working in the company because you have a better view of the market and/or the stuff that is being worked on. If not, sell and reinvest in a different asset.

#2 is the dominant point. One of the subtle points on diversification is that it's ok to take less returns if they are uncorrelated to your other investments - you want things that go up when your main investments go down. Even if you're 90% sure that Google will beat the market, you want protection for the 10% case. (And yes - your human capital will take the upside when Google continues to do well)

This is not investment advice - but the other personal finance protip I've learned is - don't put a high percentage of your high net worth in the success of your immediate work. This is why you see SV-elite raising rounds (Levchin - Affirm, Moskovitz - Asana, Williams - Medium, etc) and not just using their own capital. It feels very counterintuitive if you're a founder, because you likely made a large portion of your net worth due to investing in your own merits.

This reminds me of the number one rule I hear from old-money types: never touch the capital.

It's not like you're taking much career risk by working at google, so you don't really need to diversify it away. It's much more important for smaller companies.

The problem isn't how risky your career at Google is, it's about the correlation of that risk with the risk of your investments. The most likely risk of working at Google is if you lose your job. Well losing your job is highly correlated with whether Google lays loads of people off. Which is highly correlated with the share price collapsing. Which is highly correlated with the tech sector crashing.

So most likely scenario for that risk to materialize involves: Google runs into trouble so needs to lay people off. So at that point, you've lost your job, and all your investments in Google are down for the same reason you lost your job, and because Google is such a large company it's layoffs mean a flood of talent into the labor pool so your future job prospects are effected.

So your safety net of savings becomes far less valuable at exactly the time you use it most.

It almost doesn't matter how safe you think Google is - because by working there you're already massively more invested in it than almost any investor would be.

That's sort of my point. It pretty much takes the entire tech sector collapsing for you to lose your job and (the value of your) shares. Something to think about, but not even close to the same league as working for a ~200 person startup or putting money in the investment banking institution you work for.

I'll also admit there's no reason I know of to keep your money in google stock if you work there, but that goes with point #1, not point #2.

The entire tech sector doesn't have to collapse for Google stock to go down and for Google to need to lay people off. Google could easily become the next IBM and fail to keep up with rest of the industry or even worse it might become the next Enron and be completely destroyed by bad leadership. Both IBM and Enron were extremely successful companies in their day.

Are we suddenly living in some alternate universe where former Google engineers have any trouble finding a new job? They are after all top 1% (of the top 1% :) of the talent pool. So what you say might make sense for smaller/less respected companies, but certainly not for FAANG.

You could have said the same thing about IBM or Enron at some point. Things can change.

I'm sure people an Enron and Lehman Brothers thought the same. Even if it's a one in a billion chance, you should be protected for that.

Spot on re: 2. That might even extend to reducing exposure not just to Google, but to the entire asset class. If you're a Boglehead, one could simply reduce exposure to large growth stocks and increase exposure to small/large value stocks. That way, you reduce the correlation risk of losing your job and having your portfolio tank at the same time.

Regarding your second point, I always think of all those employees at Enron, many with stock-heavy compensation plans and even 401k funds heavily focused on Enron stock.

When the jig was up, not only were they out of a job, but all those investments evaporated.

If you feel your company will do better than an average company based on knowing the employees and strongly believing in its roadmap, culture and ability to innovate, it isn’t irrational to accumulate stock in it.

It's irrational to believe that you're more likely to be correct in that assessment than any other person who makes a bet on a specific stock.

No, it is not. This is one of the few times you are actually allowed to trade based on insider information.

If you are capable of correctly estimating that, you are likely better off running a hedge fund than working at Google.

Not really. Employees can have much more information and market insight than an external analyst, especially in tech.

Yes, but what you need to be able to predict is how the market is going to value your stock in $N years. Knowing that you have cool tech coming down the line, or that your colleagues are way smarter than your competitors', etc, might give you inside that analysts lack, but it rarely qualifies you to predict how the stock is going to perform - particularly in a large enough company where the pieces you see are small picture relative to the overall performance of the company.

It's also easy to get blinkered, and deceive yourself into thinking that the company will be successful despite the warning signs that those outside the company might see.

I worked at a bank during the GFC. And it was easy to believe (perhaps correctly, but that's irrelevant) that we weren't really in that much trouble. We were solvent, we were diversified, we weren't exposed to sub-prime, etc. But the market took a beating to us. And it didn't feel like that was justified. But that simply didn't matter. The stock was in free fall, and even if we were right and the market was "wrong", the market is always right because that's what sets the value. If you could afford to take a long term view, then the price recovered, and it wasn't the end of the world (though there were definitely better performing investment options). But I had colleagues who were leveraged against company stock and were getting margin calls every second day.

Which brings me to my second reason for hating to hold stock in my employer - those colleagues couldn't sell their stock due to insider trading rules. They had to find the money for the margin call, because the fact that they had "much more information and market insight" (as you put it) actually meant they weren't allowed to sell. Holding (public) stock in your employer is a big risk because even if you see the price crumbling, you may not be able to get out, and you just have to take the hit.

Note that not all stock compensation is the same. It sounds like you’re talking about restricted stock units, but with (say) ESPP, immediate sales can have less-than-optimal tax implications.

Is there a relative tax advantage to waiting to sell ESPP shares? AFAIK, an ESPP discount counts as earned income in the same year, and LTCG tax advantages would only apply to growth, which would be the case for holding any other stock over that period.

If you sell ESPP without waiting a year, that’s a disqualifying disposition. The difference between purchase price and sale price is taxed as ordinary income. If you hold it for a year after the sale (and 2 years after the grant), that’s a qualifying disposition, and you pay the lower of the discount or the profit from the sale price as ordinary income and the rest of the gains as LTCG.

If the stock is generally not going down and your company does the typical “you pay the lower of the first and last day price of the offering period” thing (a look-back provision), holding the stock is the only way to get preferential tax treatment on that part of the benefit. Of course this isn’t a sure thing; you do risk the stock going down before you finally sell.

I like to keep various employee stock grants for about a year, mostly so I feel like I have "skin in the game."

In general, though, my employee stock is usually not much. If I had a huge windfall of stock, I'd probably consult a financial planner and sell much sooner.

Would you not want to sell stock you have held for some time to take advantage of lower capital gains - or do the US tax authorities assume you are selling older stock first?

RSUs are taxed as income when both vested and released (generally simultaneous). From then forward, gains are capital gains from a basis of the value that was taxed as income.

With respect to lot identification (what shares did you actually sell for tax purposes), within an account, most brokers will let you elect specific lots or FIFO and I believe the IRS allows you to elect average basis. (There’s no particular advantage to making that election, IMO, so I never looked into it but vaguely recall that being the case.)

Across accounts, except for wash sale treatment, the IRS does not assume that when you sold in account B that you were selling shares acquired in account A.

If you sell right when it vests there's a negligible capital gain (or loss). The value of the RSUs are taxed at regular income when they vest. Any difference between that value and the value when you sell them is a capital gain (or loss) and that is what's subject to capital gain taxes. i.e. if you sell once they vest the capital gain/loss is essentially zero (because the stock hasn't had time to move much)

e.g. if your RSUs are valued at $1000 when they vest and you sell it a few minutes later and the value is now $1005 you'll pay regular income taxes on $1000 and have a $5 capital gain (i.e. when you file your taxes the cost basis for the holding are $1000, not $0)

It is taxed as income regardless at the point of vesting.

I think the op was saying that you already owned the stock - that now becomes worth 1,000,000 and presumably would have paid income tax for the FY when you vested.

You surly don't pay income tax on the gain of already owned stock but CGT.

Back in the day 2000's I did own stock that was worth over 1,000,000 certainly wouldn't have had to have paid income tax if we had been bought out at point - but that was in the UK

This subthread is about selling at point of vesting. Unless you are a founder with a 86(b) election, when you vest it is income.

Where do you invest that money subsequently.

You're missing an important caveat in number 1, which is the tax implications. You've got to compare selling immediately and paying regular income tax vs selling in a year and paying long term capital gains tax.

If you can beat that difference regularly in the market then you're probably in the wrong industry...

When the stock units vest (or are exercised in the case of options), you are taxed on their current value at the regular income tax rates. What would be taxed at the long term capital gains rate are any gains that happen _after_ the stock is in your possession. The former component is likely the one that will dominate within the timespan of a year.

Not in the case of Incentive Stock Options. They are taken into account with AMT, but you do not pay regular income tax at the time of exercise. If you have ISOs, selling within a year is subject to regular income tax, but if you exercise and hold the shares for more than a year, you only pay cap gains tax. And if they have a low strike price relative to current value, the difference can be quite significant. I know this because I'm dealing with precisely this situation right now and trying to decide my best move. I'll probably hedge my bets and do some of each.

Right but the subject at hand here is rsu not iso.

Cap gains is only on the stock's growth in the year after it vests. It's possible the stock doubles or more in a year, but generally unlikely.

Also, this is functionally equivalent to auto-selling RSUs and immediately repurchasing shares with the proceeds, from a tax perspective. RSUs should literally be treated like cash bonuses for public company employees - you should only keep the number of shares you would buy out of your paycheck.

The real question is why a company like Google is still giving stock to employees. The whole thing is a con at the expense of ignorant shareholders who somehow think all this dilution is not coming out of their pocket.

As sibling points out, this is reported in the financials of the company so shareholders are informed.

The reasons companies (listed and otherwise) give stock rather than cash are: 1)cashflow - it allows them to compensate people without affecting the cash position of the business 2)tax - sometimes it's more tax-efficient for the company than cash compensation 3)incentivises retention - vesting keeps people on the treadmill, especially if you re-up people while they vest so they would always leave a lot on the table if they walk. This is standard practise at Wall St firms so it's not SV-specific. 4)incentivises long-term value creation - if people get granted at around the fair value of the company when they join, then when they (exercise and) sell, they receive a share in the value they helped to create. It very much more direct than other forms of compensation 5)flexible - it's very difficult in many cases to adjust people's cash comp downwards. On the other hand if you structure a big piece of their annual comp as a discretionary equity bonus you can flex that 6)clawback - unvested equity is easy to claw back in the case of employee malfeasance. Cash is pretty much impossible to get back short of a lawsuit and even then, good luck.

I totally get that people's long-term financial well-being is often too correlated to their employer's stock price, but it's really no mystery why firms do this. It's not at all an SV invention either, it's very similar to the template used for a long time by Wall St firms.

Yes I know this is not just a SV thing, but it is still a con. About the only rational reason for granting stock in a company the size of Google is for tax reasons, but there is not even a good case here. If you want to tie compensation to long term performance then do this, don't just grant stock that can be sold straight away.

The reason it is used by lots of companies is it is a very effective way of stealing the shareholders money without them squawking.

Stock based compensation is reported as an expense in income statements, so, you're wrong.

This is why I said ignorant shareholders.

To "ignorant" shareholders, there's no difference between stock and cash compensation.

In the long run this is true, but in the short run ignorant shareholders overlook the dilution and just focus on the reported cash profit.

I do say I find it interesting that people even think that if you are going to be paid $x in total compensation it is better to be paid $x-y cash and $y in stock. I guess this sort of magical thinking is why companies do it.

That's what I'm saying, the "reported cash profit" includes stock-based compensation as an expense exactly like regular salaries. You don't even have to know what dilution means.

As opposed to the use of multiple share classes with different voting rights?

Well yes another con of the shareholders. Why shareholders invest in companies doing this sort of stuff is beyond me. It is not as though they are they actual owners of the business or anything.

I agree with you there (one reason I sell all my goog)

No its part of the employees comp - you seem to have a very 19th century Dickensian view of employees.

Not at all. I just think the employees should be paid in cash and not in shares as a way to hide the total compensation cost.

Ah so we should just tug our caps and be good little peasants and get above ourselves and say "thankee kindly master Frodo after saving the world ill just get right back to cutting the grass at bag end"

If you work at Google and you are paid in cash you can buy as much or as little of Google stock as you want. There is no rational reason (other than to fool ignorant shareholders) to pay part of your total compensation in company stock.

Tax efficacy and a much better gearing also owning shares in your employer is a good thing both for the company and socially.