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Comment by austinl | Hacker News Reader

Pinterest allows employees to hold onto their options for seven years after leaving (if they stay at the company for two years) to avoid this scenario. I think there are a few other companies that have done similar things.

http://fortune.com/2015/03/23/pinterest-employee-taxes/

Disclosure: I work for Pinterest

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I read the Pinterest policy last year and ask my CEO about doing something similar during a company meeting. He just laughed. Then he apologized the next meeting for misunderstanding the question and still said no.

I left the company.

what happened to the company?

It's chugging along. I exercised my options and just hope they IPO so I can cash out.

Frankly institutional investors still have leverage over founding teams, and unless the company is a "darling" that has investors fighting for cap space, being "nonstandard" will be a possible liability.

Laughing at the question is obviously uncalled for, but there are legitimate cause for concern for adopting such policies.

Currently, late stage high growth companies and YC companies are the two segments best positioned to negotiate against VCs for these terms to become "standard".

Employees should have more rights. I wish we could make this standard.

YC could use their leverage to do so, if they were so inclined. The only other option is for tech employees not to take jobs at firms with less-than-ideal equity terms.

Employees have plenty of rights, you're talking about giving them additional privileges. No one forces people to take equity compensation instead of salary and as long as employees continue to do so the practice will continue.

I don't believe equity should be instead of salary but if you are given the option of owning what you create, you shouldn't be enslaved by it.

It's horribly insensitive to even mention slavery in the same breath. There are actual slaves in the world and this is a completely different situation.

At PlanGrid we (employees) pushed for a longer window. One of the founders explained that this "convert to NQO after X time" is not an IRS-tested policy as of yet. The lawyers are wary of it and the negative tax consequences will hit employees under the AMT line the hardest if the policy is wrong.

That said, they are working on it and intend to implement a similar policy if possible. Reputable founders and investors don't want to force people to stay just to keep their options, nor screw people out of compensation they earned.

Here's a list of such companies with extended exercise windows:

https://github.com/holman/extended-exercise-windows

Disclaimer: I work at Flexport which has a ten-year window.

I recently learned that Instacart has a 7 year exercise window, and they are not on this list.

Send a PR?

I heard that Pinterest has to issue NQOs instead of ISOs to do this. If that's the case, they come with their own potential downsides.

ISOs convert to NQOs once a certain amount of time has passed after leaving the organization, so there's not much difference there.

Having ISOs matters most when the underlying shares are illiquid, and you can defer the tax obligation until a sale event (provided you don't hit AMT). When you have a 7-10 year exercise window, the company will likely have IPO'ed or have failed. The tax benefit of ISOs are greatly diminished.

> Provided you don't hit AMT

I think people downplay how easy it is to hit AMT. A single, no dependents, standard deduction filer making $120k will hit AMT after $26k of on paper gain for ISO exercise. Everything after that will be taxable. Filing jointly, 2 people who each earn $120k can absorb $18k in on paper gains from exercising ISOs. Add in a kid and it drops to $15k.

That's a paltry sum, basically breaking any advantage ISOs provide.

Yes but I believe you can (eventually) get the AMT difference back in offsets assuming there are later years when you are below the AMT limit. Fiendishly complicated and increasingly dumb though ...

That's assuming you can come up with the cash in a timely manner to pay the tax bill and your illiquid asset holds its value.

It's a rough situation and something needs to change.

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