Re: stock options

Subject: Re: stock options
From: Bruce Byfield <bbyfield -at- axionet -dot- com>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Sun, 24 Mar 2002 17:09:13 -0800


Zack Brown wrote:

It's really meaningless to talk in absolute numbers. 5000 shares in a
company that only has 10000 shares total is still 50% of the company.

This isn't really so. For one thing, the shares offered seem to be relatively consistent from company to company, no matter how many shares the company has issued. For another, the number of shares is only one of many factors that determine their value on the market. Even more importantly,
shares are rarely offered because the business is a co-op. In fact, shares given to employees are often non-voting, or else the voting rights in employees' shares are ceded to an officer of the company. But, even if that is so, the total number of shares given to employees is carefully controlled. Even if added together, all employee shares are not going to amount to a controlling interest. Unless you are a company officer, you are highly unlikely to become a millionaire as a result of options, even on paper.

So you're saying it's pointless to consider stock options. But if someone
gets a job offer that includes options, those options can be a significant
bargaining tool during negotiation, even if you don't care about them. So
it is useful to have an understanding of what sort of offer is 'good' in
the tech writing industry, and what is 'bad'.

Not exactly. As I said, if the company does goes public, your shares could be a nice bonus.
However, I am saying that nobody should expect too much from options. You need to be aware that offering shares is more of a way to encourage hard work than an act of generosity, much less or egalitarianism. In addition, if your company is a startup, it could easily fail before it has a chance to go public. If the company does go public, by the time you can sell your shares, the chances are overwhelming that they won't be worth more than you paid for them - and they could be worth less. I've heard that this is true in over 90% of IPOs.


Given these odds, if I were you, I wouldn't be too concerned with options during negotiations. I'd be especially wary of options offered in lieu of a higher salary. Your salary is a tangible benefit; stock options are pie-in-the-sky. Or, to put it another way, stock options are a gamble: you may win big, but you're playing against the house.

--
Bruce Byfield 604.421.7177 bbyfield -at- axionet -dot- com

"A river follows the path of least resistance, and that's why the river is crooked."
- Utah Phillips






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References:
stock options: From: Zack Brown
Re: stock options: From: Bruce Byfield

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