If You're Working For Stock, Read the Fine Print 374
cratermoon writes with a story of interest to anyone interested in working at a start-up, or compensated even partly in company stock: "Former Skype guy Yee Lee finds out that for people working at companies controlled by private equity firm Silver Lake, 'vested' doesn't mean what you think it means, and gets no money from the stock options he thought he could exercise. 'Skype spokesman Brian O'Shaughnessy said, "You've got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn't get that benefit."' Fortune also has the story." Some of the commentary on the confusing language surrounding the stock grant says the company was doing nothing out of the ordinary, but it seems that's because opaque language is the norm.
The profit is the profit (Score:5, Insightful)
...opaque language is the norm. (Score:5, Insightful)
It wouldn't be if you people would quit signing things you don't understand.
"confusing" (Score:4, Insightful)
Opaque Language (Score:2, Insightful)
Re:Working for stock options (Score:4, Insightful)
Next time read the article, this has nothing to do with the difference between stock options and stocks. It has everything to do with the difference in the stock option contracts between companies.
Specifically, the issue is that normally stock options once vested (ie: you can exercise them) do not expire after an employee leaves a company. In this case they did and the language of the contract did not at all make that clear.
Re:...opaque language is the norm. (Score:5, Insightful)
It's easy to tell someone "be sure to completely read what you sign", until the day someone sets a 45 page or otherwise excessive amount of fine print in front of you, summarizes it, and asks you to sign it. Try buying a house. If you're really going to read the entire stack of morgage papers, you're going to need a few days. And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.
This one pulled a double-shaft on him... the offending bit of legalese wasn't even in the document he signed. It was something like a "this agreement also includes stipulations covered in a different document". He couldn't possibly have caught that even with a lawyer reading over his shoulder, without taking a break and doing research and chasing down the additional paperwork (that he wasn't even provided with at the time of signing) that it was binding him to. That's about as far into "dirty pool" as fine print can get.
Re:...opaque language is the norm. (Score:5, Insightful)
If you're really going to read the entire stack of morgage papers, you're going to need a few days
Heaven forbid someone take a few days to read and understand the terms of such a large loan and purchase. It's not like people spend a large fraction of their lives repaying a mortgage. It's not like people might have to deal with the mortgage rate changing on them a few years down the line.
And there's no chance in hell you're going to catch anything shady like the above unless you have a lawyer there the entire time, and you can bet that's going to be an expensive few days.
We're not talking about buying a laptop, we are talking about buying a house. Yes, I would want to have a lawyer look over the contract before I agree to repay hundreds of thousands of dollars to the bank.
the offending bit of legalese wasn't even in the document he signed
So he should have either asked for the document that the contract referenced.
He couldn't possibly have caught that
Yes he could have, if he had actually read what he was signing. He did not read it, he just assumed that he could work at Skype for a year or so and then jump ship, like he had done nine times beforehand. Why are we feeling sorry for this guy?
Re:...opaque language is the norm. (Score:3, Insightful)
I honestly thought this was common knowledge (Score:5, Insightful)
I'd say at least half the companies I've received options from had clauses just like this. It may not be par for the course with private venture-funded companies, but it sure is close.
You should always assume that options or common shares of private companies are going to be worthless to you. Never include them in your compensation evaluation. Even if you are in a company that lets you keep options without buyback if you leave, you still have common stock and they can play games and absorb the equity event's value entirely or almost entirely in the preferred shares. Or they can recapitalize the company prior to acquisition, re-issue stock to existing employees and investors and cut the rest out.
Making money off an equity event in a private company is like winning the lottery. Pretty nice if it happens, but you're not being rational about it if you think you're going to win just because you played.
Re:...opaque language is the norm. (Score:5, Insightful)
Re:Working for stock options (Score:5, Insightful)
Why am I supposed to feel sorry for someone who failed to read and understand the terms of the contract that he signed?
Empathy block - check.
Assumption that all humans are perfect rational entities - check.
Supremacy of the business contract - check.
Internet Libertarian Warrior mode engaged!
Re:Private options can be diluted on a whim (Score:5, Insightful)
I think there's some old quote along the lines of the guy who owns 20% of the company owns exacty as much as the guy who owns 80% wants him to.
Options without an utterly ironclad shareholders agreement are worth exactly zero.
Even with one they're barely worth more.
Re:The profit is the profit (Score:3, Insightful)
I am the employee who generates value for your company. If your staff isn't generating more money than it costs, then either you're a poor manager, or your business plan has already accounted for that and hopes to recoup the losses later. If you want assured profits, then you need to compensate the employees who generate the wealth.
Yes, you steer the ship, but the employees are the engine, the sails, the hull, and the bilge pump. Without us, you'd be steering a canoe instead of a battleship. Take care of us like you'd take care of your ship, or else sooner or later you'll be swimming with the bankruptcy lawyers. (I hear they have dolls' eyes.)
Stopped basing decisions on stock options (Score:4, Insightful)
Re:...opaque language is the norm. (Score:4, Insightful)
It's not like people aren't trained to read legal papers . . .
Oh, wait, that kind of training takes 8 years and $100,000 dollars. People actually *aren't* trained to read and interpret legal papers, that might be why corporations hire lawyers to create contracts in which important legal information is hidden on other papers not made available at the time of the signing of the contract, completely ignoring the concept documented under the Uniform Commercial Code saying that a contract involves coming to a 'meeting of the minds'.
Sorry - I'd have to say this should be brought to a court. A contract does involve a meeting of the minds, and the company *knew* this addenda was entirely relevant to that meeting of the minds and took positive steps to hide that fact.
"In criminal law, a fraud [wikipedia.org] is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation."
As a potential member of a jury pool, does putting such relevant information in a document not available at the time of the signing of the contract strike you as being either accidental or forthcoming?
Pug
Re:Working for stock options (Score:4, Insightful)
Because redefining commonly understood words - and making you hunt down those definitions with no reason to suspect they've changed - Counts as nothing short of a "lucky he didn't go postal" level of sleaziness.
I want to pay you a million dollars a year to work for me. See my non-attached 300 pages of fine print for the definition of "dollar".
Re:Working for stock options (Score:3, Insightful)
When you exercise options, you have a tax obligation between your strike price and the current price of the company. So if the option is at $1/share and the current price is $100 a share, he owes tax on $99 a share. Now, if he has a side agreement that he has to sell them at exercise price, he has to sell them at $1 a share, enabling him to take a loss as soon as the actual sale goes through.
This sort of confusion was really big during the .com boom/bust. People would exercise options to get a lot of stock when the price was high but then they *wouldn't* sell them. They would end up holding them and the company might go bust or lose 90% of its value. They would have a massive tax burden and the underlying stock would be worthless to cover it.
Re:Winning at all costs? (Score:4, Insightful)
The owners of the company sold out to a large corporation for a huge sum of money, and didn't bother to negotiate any kind of retention bonuses for the employees. In fact, everyone had to redo the paperwork as if they were just starting with a new company, vested profit sharing was lost, vacation days were set back to zero. The company was built on the labor of hundreds of employees who put in many, many hours of overtime with the promise of being rewarded with a piece of the pie when the company became profitable, but it was all a lie.
My advice, tell them thank you for the generous stock options and other benefits, value them at zero (because that is what they are worth) and ask for whatever compensation you are desiring all in salary.