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Comment by jfruh | Hacker News Reader

Felix Salmon makes a good case that Skype's stock agreement was deliberately obfuscative:

http://blogs.reuters.com/felix-salmon/2011/06/24/upgrading-s...

Basically, Skype's claim is that the point of this clause is to retain employees -- you don't get cash in your vested stock unless you still work for the company. But as Salmon points out, none of the employees actually realized this -- the clauses are bafflingly worded, and refer to external documents, to the extent that you'd need a lawyer to figure them out -- so it doesn't make any kind of sense as a retention tool. Add in the fact that this policy is pretty radically different from standard tech industry practice, where if you're vested you're vested, and it really seems like it's just a way to screw employees.

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Clearly nonsense. When I worked for KL Group, a unique incentive program was put into place to allow employees to participate in any "liquidity event" that might take place.

It was explained to everyone, clearly, that you only benefitted if you were an employee at the time, and that when you leave the company for any reason, the founders would buy you out according to a specific, written formula.

There was absolutely no ambiguity about the mechanism.

There's nothing wrong with such an agreement (as you describe KL), and though this type of explicit inventive plan is not so common in Silicon Valley, it is surely valid, ethical, and and useful wherever it arises. (To be more complete, in Silicon Valley there is usually such an incentive plan concerning liquidity events, but it's tacit and is anyway orthogonal to stock/option grants.)

But you say it explained to everyone at KL "clearly" what was going on. Don't you see that this is one complaint here is that not only wasn't this done, but perhaps the very opposite?

  And were you given detailed instructions on how (and how quickly) you must exercise vested options if you quit,

even though this had no meaning at all whatsoever? If the answer is no, please imagine it was yes. Would you have still been totally confident that you understood the mechanism (wouldn't you have wondered: why are they explaining something that is in practice irrelevant?)

When I said, "nonsense," I meant that it's nonsense to call it a retention plan if you don't actually tell people they have an incentive to stay after their options so-called "vest."

Add in the fact that this policy is pretty radically different from standard tech industry practice

The only radical difference from standard industry practice is that it's actually spelled out in the contract.

That's just not true, and I wonder if you can cite some statistics or qualifications to back that up. In the Valley vested/exercised shares are equity, common stock, a true ownership stake in the company (see next paragraph, I'm not utopian about that means). Here, he lost his right to the stock after he vested and exercised. _No_ stock! That is profoundly at odds with industry practice that I just don't know where you are coming from in suggesting it's normal.

Standard tech industry practice does, true, allow insiders (at the time of the liquidity event) to play a variety of games to screw common shareholders. Generally, though, the bigger the event in $ terms (and this is big) the less legal room you have to play these games. For instance, as others have pointed out, you can low-ball the offer price but offer "retention bonuses" to current staff. And VCs always have their preferences. But if you keep these things on the safe side of the law, they are less and less impactful as deal size increases. I'd love to hear of a commonly employed mechanism that washes common to zero in a multi-billion dollar deal. I doubt frankly that it exists.

I agree that losing the right to exercised options in a highly public, billion dollar deal is odd. However, the end result is that guy has no stock or money. This is the same result of the "variety of games to screw common shareholders" which you seem to agree is standard tech practice. I guess there's a difference in the mechanism, but the result is the same for the guy getting screwed. Unfortunately, I cannot cite "real" statistics so feel free to write this off as internet hearsay. I should qualify that I made the mistake of spending too much time working in Boston where everyone secretly wants to be Thurston Howell III, not Steve Jobs or Larry Page. Thus, my experience is not really "the Valley" but then again neither was Skype's.

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