Edit: The article touched on this briefly, noting the disadvantage to the employees in the case that their particular firm does poorly while other companies in the market are doing OK. I'm specifically talking about industry-wide downturns. The ability to cut everyone's salary this way may keep unemployment from soaring as high as it would otherwise.
Maybe, maybe not. If the stock price is beating inflation, then you're still getting a raise here, too. Failing to renew your stock compensation at the end of the four-year period would be a pay cut.
BTW, 20 years ago I read a statistic that Microsoft had made 10,000 millionaires just in the Seattle area alone. In the early 90s, an acquaintance would refer to his car as his "quarter million dollar Oldsmobile". I finally asked him what he meant. He laughed, and said that he'd cashed in his MSFT stock options to buy it, and that was what the options would have been worth when I asked him.
The employees should be receiving dividend-like cash bonuses and should be receiving salaries that actually afford the cost of living in their geographic location (in addition to legitimate retirement contributions, 40-hour work weeks, generous vacation, and legitimate insurance benefits, which all should simply be regarded as the absolute bare minimum conditions of employment period).
Saying it's either stock or no stock is a false dilemma. The same amount of compensation should be shared with the employees, just not necessarily in stock format.
I'm also not opposed to someone who chooses to take company stock instead of an equivalent cash bonus. If you weigh up those risks, you're a grown up and can choose for yourself.
But for most people, taking a cash bonus and putting it into a simple low-fee index fund or ETF is going to be worth a ton more than their company stock, while also lowering their overall risk, since a market downturn won't affect their regular paycheck and since their regular employer won't affect their return to their outside investments.
The point is they should have the choice.
> BTW, 20 years ago I read a statistic that Microsoft had made 10,000 millionaires just in the Seattle area alone.
BTW I read that someone somewhere won the lottery ... better go buy a ticket.
http://www.forbes.com/forbes/welcome/
Founding family got rich, too. Costco always did good pay and benefits with what HN would call a subscription model. Plenty companies referenced here have a subscription model.
- Company fail? Oops, not worth anything - Company succeeded but sold for under whatever the last round was raised at? Oops, not worth anything - it all goes to the preferred stock holders - Raised a huge round at a great valuation? Too bad, you can't take any money off of the table like the founders probably can. Also, any options you now exercise are 'worth' more and oops, you just triggered AMT and now owe a bunch of taxes for income that may or may not ever exist and that you most certainly can't access yet - Company went public and the stock shot up? Great... unless it tanks before your 6 month lock up period is up and you're stuck with a tax burden you can't afford to pay
Layered on top of this is the fact that a lot of the decisions that have real, tangible effects on the above are totally out of your hands (things like how much dilution your company takes on). Even if your founders go to bat for you the investors have very different incentives than you do in all but the totally ideal outcome.
My point isn't that people should avoid accepting options but that they should be viewed as a nice perk along the lines of someone buying you a big stack of lottery tickets. I've had too many friends comparing offers between companies multiply what percentage of the company they'd be getting (if the company is even telling them this) by the company's current valuation and treating that like it's money in the bank.
By all means, trade salary for the opportunities that working at a small startup could give you (like responsibility, an opportunity to learn, coworkers you like/respect, etc...) but be _very_ aware that what the company tries to sell you RE stock is a reality viewed through the rosiest of glasses.
Mark Cuban did this when Broadcast.com was acquired by Yahoo!
However, the contracts may be illiquid / not available for smaller market cap companies.
Typically for a tech employee when it comes to compensation the equation is salary + bonus + RSU/options. Its important when considering a position to think through each piece.
In regards to the bonus how does it get determined what the amount is, is it known upfront, does it typically get paid out at 100%, over 100%? What is the percentage amount for the last x years?
For the RSUs/Options if its an established company how stable is it, if its a startup then how likely is the success of the company (in my case if its a startup then I personally don't depend on this part of compensation).
For the others (especially growth startups that aspire to exit) it is just salary + pitiful options.
There isn't anywhere near parity to make up for the lack of comparable bonus or liquidity of RSUs.
They are acting like they are doing you a favor, but the current reality is based on greed (from the board) and it will simply take a collective of engineers to simultaneously realize they are undervalued, just like some financial professionals realized in the 80s.
It's generally bad if your cash income is highly correlated to your equity value. Claiming that stock compensation aligns employees with the company is just nonsense. You want to hire smart people, right? Well, smart people will want their income diversified.