That article is dumb.

Feels like one of those things that someone writes just to get noticed because it contains a few grains of truths that resonate with people holding certain strong core beliefs.

It's basically the Fox News strategy.

Edit: I guess I should add some content.

Uh, this isn't a hard truth.

This is just dumb. I especially like "Anything of value can be traded for or converted into something of equal value.". Nothing like confusing liquidity with value. If I'm all-in at a poker table with AA vs KK, would it make sense to say my AA have no value because I can't cash them in until all of the cards are dealt (and sometimes they'll end up worthless)?

Also dumb. That's like saying your annual salary isn't yours because it gets paid out over time.

This is probably the most accurate. But its still stupid because there is lots of room between "Get Rich" and "Worthless".

daveT,

I think you are confusing yourself with someone else. I don't think you're a criminal in any way. (Unless you have started ripping and running or something.)

You are clearly totally wrong about the morality of option packages. They aren't really any different than bonuses.

I think asking people to work for free is morally wrong. If people want to negotiate on options that are going to pay $N 5 years from now and work the whole time for free, I still think it is ethically wrong for both the employer, who should know better than this, and for the employee, who is diminishing the value of the work for every other programmer in the industry.

And if you are going to ask, yes, I think it would be ethically wrong to go in to a job that is advertising $75k / year and offer your services for $15k / year. On the same token, I think it is ethically wrong for an employer to pay far below market with a far-flung promise of equity shares, though this isn't as bad as asking for free work.

Idk it seems like getting paid in your mind, how much is reasonable but straight away and putting it directly in investment but for the company you work at; similar to getting paid upfront and putting it in stock market.

You just get the added bonus of actually seeing what goes on while working at the place and contributing.
Yet that is my view of the whole thing and its different for every person.

Dave, that is all ridiculous.

Dave,

So your moral code relies on fiat currency?

daveT,

You may not understand this, but coding is a creative task where some people are an order of magnitude better than another person (so are actually so bad they are net negatives). Aside from the totalitarian overtones, it isn't practical to offer Guido, a competent engineer, and then someone like yourself the same pay.

I'm claiming that asking people to do free work is scummy, regardless if the worker's role and talents (see the night club example) and it comes across even more scummy when words like "equity" are used. If they are willing to throw me under the bus today, they will do it later on.

Also, mathematically, it doesn't work out very well. I figure that you would be getting about $20k / year in equity after 5 years or so (assuming an actual profitable business and okay-ish buy out). So, in order to gain $10 / hour long term, you have to sacrifice $20 / hour or more? You'd do so much better just finding something that pays the difference, will give raises and possibly profit share, save that money and invest if your power of prediction is that spot-on.

First, I have no idea how asking a person to do free work is scummy. Like the entire concept is mind blowing to me. There's tons of industries that work with unpaid interns and lots of people seem to think they get something out of those internships. Money is not the same as utility. Economic decisions should be based on utility (including both offering someone a job and accepting a job offer).

Second, equity is an actual thing. It's a pretty well defined thing too. I have no idea how its even more scummy or why its in quotation marks.

Third, I made a post a week or three ago about how most developers don't value equity properly. I have no idea where you're getting your specific numbers from - but I'm going to assume they're worth as much as you think equity is worth. And just to be clear - the approach I mentioned values equity at a brand new non-funded start-up as basically 0.

Fourth, I have no idea why you think someone is entitled to a specific wage because thats what they got in the past. Or why offering your services for less than your competitor is wrong. That seems like a pretty fundamental part of how a market economy works.

Internships are about the most scummy and unethical working arrangement we have today (if we constrain to office work).

First, the way internships are done are outright illegal as they are practiced. The law, at least in CA, has a very precise and narrow definition of interns, and few companies actually follow it.

Interns pretty much always win when they sue for unpaid wages, but they don't sue because they don't want to be labeled as an employer, which is pretty scummy if you think about it.

Internships only help those that can already afford to work for free. A C-Student who got into state college because his parent footed the bill and is paying everything else can do an internship. A student who got into college only because they got straight A's and received a scholarship has to spend his summers working at McDonald's to cover his $500 / month rent and food.

I guess we can call it ethical to work kids unpaid 12 hour days because they got something out of it (yes, I've seen this happen).

Offering $0 for a job that otherwise has value is not, in my opinion, a fair argument, and not a stable one either. There is a cost to everything, but it is oftentimes invisible, but that invisible cost is what drives the zero-dollar / ultra-low wage economy, and none of it looks particularly pretty to me.

If you have zero sales, then your company is worth exactly nothing, which is why I put equity in quotes.

Okay, I know some companies get funding and some value placed on it, but I'm not an expert on that stuff, and I don't want to spend time studying VC funding just so I know what I'd be getting into.

I was using imaginary numbers, of course, but I was sort of going off the $300k each employee from Tumblr received after their $1.1 billion buyout, and using considerable imagination. The point I was making was that, if you are driven by equity and you have the ability to predict success so well, then it would be a much better strategy to find something that doesn't pay less and invest in startups after saving for 2 or 3 years.

I would say this is not true, and I'm not arguing entitlement either. Something closer to this:
https://en.wikipedia.org/wiki/Coopetition

There is some place I was working at where a 3,000 lb piece of glass squashed an immigrant worker like a bug. I think that, ethically, his family should have been compensated for their loss, but they weren't since they were still living in Mexico. I do not think he made a wise or ethical choice by not ensuring that his family was covered in case something happened and it is straight up ****ty of the employer to not make sure his family is covered in case of an accident.

I guess it is hard to express how I feel about all of this, but I've seen what happens when competition becomes a race to the bottom, and it really isn't something I feel is correct to promote as an employer / job-seeker, service seeker / provider, website owner / writer, or any other monetary relationship.

Suppose two people with equal ability and skill are interviewing, and you have zero preference for one or the other. At the end, you talk about compensation and Mr B says "$15k / year, no benefits, no perks, no free meals" and flat out refuses to hear anything about your offer. Assuming this person is completely normal, personable, and stable, and the only differentiating factor is the price, would you hire this person, ink the paperwork, and laugh the unused equity to the bank?

Of course I would. Why the hell wouldn't I?

I usually goto the local stores and then argue with the manager about how we should negotiate a price that is fair to both of us. Because him undercutting his competitors via sales or loyalty promotions is unethical and immoral.


Anyway, do you this at interviews? We may have gotten to the root of why you're essentially unemployable.

A digression, is this actually reflected in salary's though? I don't think it is often enough. I have brought up measuring productivity quantitatively a few times on this forum. I believe that companies actually are reluctant to do that because the developer that shows up to be an order of magnitude above the least productive developer would be demanding (rightfully) an order of magnitude greater pay.

Mathematically speaking, this is really a situation that involves valuing equity. Here is one way, a good way, to do it:

Discounted Cash Flow

To me, your main point is that the discount rate is very often estimated to be way too low. That probably is true in my view, FWIW. Of course startups offering equity only are going to be optimistic about their prospects. At the end of the day it is incumbent on the developer to poke holes in that optimistic scenario. Blowing them all off will save you some time, no doubt about it.

* We're not talking illegal internships here. Those are scummy - but its not just because people are working without pay.
* Everything about a free market system is better for rich people and ****tier for poor people.
* You're still missing the point that money isn't utility. Lots of interns get non-monetary benefits from their role. That's why they do it. Connections, knowledge, experience, etc. All of those have utility to a person (and interestingly enough, like equity some non-zero future EV).


There's things other than sales that have value, so this is just wrong. But either way we're not talking about just companies with zero sales.

That's fine. I'm not saying everybody should go out and get a job with a below market (or 0) salary and a bunch of equity.

The point is that just because its not a decision you would make, doesn't mean its not a reasonable decision others would make. And frankly for someone that seemed to get pretty worked up about how people get overly offended about things - this is a surprising view for you.

Getting offended just because someone made an offer to you that you personally don't like - is ridiculous.


The numbers part is sort of whatever, but you're right in that if you're just looking for pure financial gain you're almost certainly better off working a market paying job and investing a portion of your earnings in a variety of start-up related fields and companies than you are putting all of your eggs in one basket with a reduced salary and equity.


And I've seen what happens when one group of people get paid more than they should at the expense of freezing out a whole other group of people willing to work for less. And I'll take the basic market economic forces (competition, market wages, etc.) over keeping wages artificially high at the expense of a whole other group of people. And I'll let the Government take care of providing a social safety net.


Uh.... yes? Although I suppose instead of laughing the unused equity to the bank I'd probably use it to grow the business. Maybe hire a Mr C. And so on. I'm not sure what your point is here. You'd pass on Mr B and try to find a more expensive Mr. C?

I had to get a fence built a year ago. I asked 3 people to come over and give me estimates. I didn't like one guy so he was out - and then I picked the guy willing to do it for the least amount of money. Seems standard.

The problem with this is that as an employee (or potential employee) you often don't have enough information to do this. This method also discounts other aspects of the business.

Cool philosophy dude.

lol at having a bunch of interns on food stamps living in section 8 housing.

Merry Christmas

First, I wasn't talking about interns there. What do you think happens to the people that you're refusing to hire who are willing to work for less?

Second, do you think these interns you're talking about would be better off just having no job at all? If so, why aren't they doing that? Should we also ban volunteering while we're at it? Should government set the rate every job should pay?

So a few comments:

1) People are compensated like this. I have a friend who is actively rejecting a Google director spot. It pays as well as you assume it does. He is taking a pretty massive paycut (Like 1 regular Google/Netflix engineer salary) to derp around and work at a startup. Clearly his is massively immoral since he is compensated by options.
2) Quant based evaluation systems are super easy to game. Programming is, at its core, problem solving. You're solving puzzles using an arbitrary language that logically (or sometimes illogically) fit together. This is why people are heavy on "What have you done? What expertise do you have?" Since you can waste infinite time listening to some jackass try and implement containers on Linux.
3) So ya... hiring competent folks is always a plus. I don't know a single person who'd consider cutting a team of 20 junior-ish down to a team of 4 badasses who're motivated with each getting 3x the pay. I also cull my advisement circle of people who don't fit my breed of groupthink. so w/e.

This hiring derail and compensation is totally insane btw. A couple points that have not been mentioned.

1) Valuations on options are exponential and need to be modeled as such. A startup only lasts 7 years if its making substantial progress. Don't know why people model 4y when most of the scenarios of going to 0 include far less actual working time.
2) Options also align incentives. Going back to the obvious "coding isn't drone work" (well some is). If you get someone who can capture a portion of the upside of your business, then they have a realistic chance to make a significant sum of money actually trying. This is very important with smaller teams. (Hence why they get bigger equity slices.)

Whatever tho. daveT wants to be a wage slave, great. He thinks its immoral to have choice, whatever.

Thinking about it last night, here's probably what I would say are the true 'hard' (used loosely) facts about equity:

Equity isn't a home run and it's usually not worthless.

The home run / worthless equity is typically going to the founders and very early employees. These are the people taking significant chunks of equity before any real funding or revenue. And of course, worthless is much more likely than home run at this point.

So if you're evaluating a job where you'd be a very early employee (or founder) its best to discount the value of equity significantly and decide to take the job for other reasons (it interests you, you think the team is good, you'll learn a lot, want the challenge, etc.).

But once a company has a relatively steady source of revenue and/or funding (which typically happens after single digit employee numbers) - the value of equity is relatively easy to get a ballpark figure of its expected value. And this is typically some fraction of your annual salary - generally an amount that's a nice bonus if you get it, but certainly not life changing.


Face value isn't real value.

Many people value their equity pre-tax. And some people think about it as owning stock and assume it'll be taxed like capital gains. But in many situations stock options are treated as employment income. And because it often comes as a lump sum that means its all taxed at once instead of evenly distributed across the years you've worked.

Many 'exits' also involve things like legal fees that come out of the pot of money before it gets distributed to shareholders.

Adding in things like dilution and investor preferences - the real value of a stock option is typically significantly less than the face value of the stock it represents.


Job Mobility

I think most people understand the idea that equity vests (just like almost all of your compensation - just in a slightly different way). But I suspect many people don't realize that even after an option has vested it can have a significant effect on your ability to leave a company.

Most options granted to employees need to be exercised when leaving a company. That means that at the point in time when you leave you'll have to put up some money and 'gamble' on the future of the company.

And not only do you have to gamble the exercise amount - there can often be tax consequences of exercising a stock option. In the best case scenario where you were an early employee and the company has grown in value tremendously - leaving and exercising all of your options could have a tax consequence greater than your annual salary. So you'd need to invest a large portion of your net worth to get shares that aren't liquid and are generally still pretty high risk.

Options can effectively force someone to stay at a company for many years past the full vesting date of the options.

jj,

I think that is a little off.

Options shouldn't be viewed as a "bonus". They are a reward for years of effort building a business and aligned in that way.

I think the whole face value is wrong. But that me be how companies present the incorrectly to employees. I've never been on the employee side so I am not familiar with the dishonesty (Didn't read NYT piece).

Totally correct on JM part. But the options are intended for people who have stayed at the company longterm and helped build it. There is lots of idiotic rambling about companies with 7y option exercise periods, but that is naive. Clearly that needs to get solved in an acquisition before someone decides if there is 15% of the company that could be bought from them at any point in the next X years.

Options are great for retaining talent if you are successful. Sorry! Can't leave cause we're holding a 1m payout over your head. qq. Must be horrid.

I think you're misunderstanding what I said.

Aside from founders/early employees the value of the equity is typically a fraction of the annual salary. Let's say someone has an annual salary of X and the equity is worth .5X at exercise. If they've worked 4 years (typical vesting) then 89% of their compensation over that time is salary.

I think calling 11% of your compensation (that's high variance and illiquid) a bonus seems reasonable. A bonus can still be a reward for years of effort building a business. In fact, it typically is.

You need to give me more details on how you think its wrong.

I'm just saying that many people don't realize this. Not being able to switch jobs is a pretty huge negative - so people should be discounting their equity accordingly with respect to how that affects their life. If you're a life long New Yorker being tied to one successful company for 5-10 years is probably not a big deal. If you're planning on moving across the country in 3 years, or on a work visa that expires in 3 years it could be a huge problem.

Okay, after that last explanation it seems more clear you have no clue how options are priced.

The entirety of face value seems ridiculous and made up.

So when you buy options you become a common shareholder at a certain price (usually). You seem to not understand this. Options are really that simple. The idea of an exit price in your first example isn't daveT levels of insane, but seems like you don't know what you're talking about.

Assumptions and views that fit differently, depending on the situation and the type of person wanting to do x.

At least with this field, its pretty hard to waste your time for multiple years and taking risks shouldn't be discouraged.

Some people want to retire mid life, while others probably could care less because they believe there will always be something to do.
Personally I plan to take the latter and assume that the younger generation of employees today in programming, don't really worry about having 'x' saved away for 'y' years because most things seem really easy to them; when they get to a stable point in their entry level.

Having bank, saved away for emergencies in life is important though.

Hah, as someone thats personally gone through multiple acquisitions and option grants - I'm pretty confident in what I'm talking about.

First, often you don't really become a common shareholder. You're often buying/selling at the exact same time. Sometimes you couldn't even continue holding the stock if you wanted to (in cases of private acquisitions).

Second, there's a very meaningful difference between someone that buys a common share from a broker and a person that gets a common share from exercising a stock option. Those shares are not treated the same from a tax point of view. It's important to know this.

Third, I was also trying to get to the point that people often take the current valuation of a company and multiply it by their ownership percentage and expect their shares to be worth that much. But thats not accurate because there is no situation where you would ever see that money. Any event where the shares could be sold would be accompanied by various fees/dilution/investor preferences that would decrease the total value.