The last company I worked for had given me 600,000 options over 5 years. Unfortunately they never made me a dime, despite the hours I worked or my contributions. Had I simply demanded what I was worth, I probably would have been $100k ahead over
that same time.

There are lots if scenarios where management can
benefit from a material event (such as a merger) but very few employees can. To exercise my options I had to obtain approval from our share officer who would have probably not let me exercise them except when in a blackout period (which was like 9 months out of
the year)

Stock options are basically worthless, and I’d never recommend and employee take
them in exchange for proper compensation. In a public company an employee could be
given preferred shares (which are real equity, options aren’t), which would
be better. But stock options can be nullified by a lot of poison pills, and shares in a private company are essentially pointless if you don’t have any abililty to sell them.

There was just one problem: she couldn’t tell me the size of the option pool, or the number of outstanding shares in the company! So, essentially, I was supposed to take their word that it was an equitable amount, without any context. Of course, I turned down the job.

I’ve lost the lottery much more often than I’ve won it, however 100% of the options I’ve been granted in Silicon Valley have increased in value (still waiting on an exit for one of them), and 0% of the options I’ve been granted in Vancouver have increased in value or seen successful outcomes.

So there’s a definite chicken-egg scenario at play here as others have pointed out. Vancouver companies do tend to aim low and their VCs like to fund them aenemically forcing down-rounds and low valuations, rendering options granted at early stages essentially worthless.

I have specialized in the area of equity compensation for more than 15 years. I also remember the Cisco and Google fortunes and have seen the fortunes created by PayPal and others. These, however, are the extraordinary stories. They do not, and have not,represented the facts of “normal” equity compensation packages. Most people do not get rich, even when their companies are incredibly successful.

Options were designed to fill a hole in the amount of pay a company could afford directly. As they became popular and pre-IPO money poured into companies (mostly in the late 1990’s), salaries equalized and then larger public companies started trying to compete with options. This distorted the market and has left everyone with a feeling that it was the “norm”, when in fact it was a 3-5 year blip in history.

The key is providing “equitable” equity compensation. This is a difficult task and requires significant planning and management. I think we will continue to see a growth in vesting based-on hitting performance criteria, rather than just time-oriented hurdles. This has the possibility of opening up equity compensation to more individuals, but limiting the payouts to a selected few.

I would like to add to Ben’s inquiry regarding amount and vesting period a question about “sweat equity.”

Are there rules of thumb for the trade of salary for options?

For example, although a startup may have already received private funding at $xyz per share, it shouldn’t reasonably be expected that employees sacrifice salary at the same rate per share… Or should it?

In short, when negotiating for equity, knowing the price per share of private investment, how can this knowledge inform how to negotiate the balance of options vs salary.

Thanks,
Peter

Given that, stock options aren’t as valuable to potential employees. What is 2.5% of a company that does moderately well but never sells worth?

In fact you make us wage slaves seem like ungrateful slobs. Since I don’t hold out much hope of cashing in on any lotteries, you might consider that perhaps the journey is more important than the destination to me. Will I feel good about making you rich? I mean are you someone that deserves my devotion? In the time that we have, we want to be loved, we want to love and we want to matter. Is that so hard for you to get? Because in the end the destination is the same for all of us, bud.

I don’t blame you for holding onto your equity if it’s not being demanded by hires. In the US you’d be hard pressed to find anyone doesn’t want a stake in the company’s future.