>> I don't buy this explanation. Very few employees are paid in any financially complex way.
It depends on the class of workers. I'd agree with you w/r/t most wage earners being paid in transparent manner. But I think the GP comment was referring to technology workers (given the context of HN.) In the case of tech workers, many are paid in very complex ways.
If you have illiquid stock options in a private company, and especially if you have taken a below-market salary as many startup employees have, your compensation is about as complex as a CDO. Just like a CDO there are multiple tiers above you that need to be paid out before you ever get paid.
Unlike a CDO, where you can actually pull up the details on the tiers above you (tranches), at startups as employees, you dont get to see the cap table, so the whole maze is invisible too!
Worse, unlike a CDO where you can sell at any time, here you have to exercise and hold stock for some far-away liquidity event that usually doesnt happen. So you have an invisible maze, and then a pot of gold at the end, perhaps. Or not.
> if you have taken a below-market salary as many startup employees have
I think this is part of the startup mythos. At the three startups I've worked at (~10 people), none of us had to sacrifice competitive salaries for stock options. The options were on top to incentivize staying at the company longer.
I wonder how common it actually is for people to take significant paycuts in 2020 for a startup opportunity (founders aside)
The confusing part is that salary and stock get mixed up, but in a public company the stocks effectively cash and can basically be considered salary, unlike illiquid equity.
I don’t know where you’re from, but in SF amongst my circles, senior engineer market rate is about 300-500k but most startups will only pay 150-225k salary so that’s a huge pay cut. However, the base salaries are same, but you can pay your rent, mortgage, or student loans with the public company RSUs.
That’s why it’s bullshit when employees get told they get common shares while investors get preferred because employees take salary and therefore less risk. If you’re walking away from 200k per year of public stock that you could instantly sell on the public market and buy real estate with, you are in fact taking a huge risk and a pay cut. Trying to pretend like you’re not and that the startup is paying a “competitive salary” is a sleight of hand used in 2020 to fool naive engineers.
1. Level up your career / role flexibility.
2. Big companies suck (but [big] startups can suck too).
3. Burning idea you want to get done / tech is interesting.
4. Lottery tickets (options).
This is definitely going to be a debate depending on what market you're looking at. But I don't think it's up for debate that if someone is leaving a FAANG position to join a start up, or debating between the two options, that they are taking a non-trivial pay-cut for the start-up.
Maybe at super early stage startups where you get at least one percent of the company (if not more). At older startups you should see base salaries that are reasonably competitive with public company salaries: not everyone makes Google money, but you shouldn’t have much trouble getting what you’re worth elsewhere until you cross $200k or so.
The big difference is that the publicly traded companies can pay RSUs worth money NOW.
At this moment in time, $200k total comp at a Bay Area FAANG is roughly... an engineer 1-2 year out of university.
Given that so many of the hot startups are in the Bay, I'd say only fresh college grads are looking at remotely similar comp between the two. Everyone else is playing the options lottery.
>none of us had to sacrifice competitive salaries for stock options.
Does this map to reality? Are you saying that if you were at Google making 250K in TC the Startups were paying you 250K Base salary + stock options? That seems ludicrous.
> ...at startups as employees, you dont get to see the cap table, so the whole maze is invisible too!
I've never heard it adequately explained why employees should accept this state of affairs. Not only is the cap table invisible, but the fully-diluted cap table and terms of dilution and many other terms and conditions are also hidden from non-founders/investors at most startups I've read about. I've heard so many stories of shares getting diluted right out from under employees immediately before a liquidity event that it has become a trope. IMHO that's not investing into a startup; that's buying a lottery ticket.
What am I missing here about typical startup stock options where the same terms and conditions founders and investors see are not accessible to employees?
It is the same as acting and sports -- people look the handful of winners, ignore the field of dropouts, and think they too can become a winner. They see AirBNB and think their startup is the next AirBNB.
Also much like acting and sports, there are a constant stream of new entrants who have not learned the lessons.
I want to be fair here -- I work at a startup and I love it. But I value my equity at zero and nothing more. I chose to work at a startup because I get to do cross-functional work rather than get stuck into a silo of a silo at a large company. I took a significant paycut from a large company salary and a significant upside cut from when I was a founder in exchange for more accelerated learning and exposure to all parts of the company.
> Also much like acting and sports, there are a constant stream of new entrants who have not learned the lessons.
That sounds like the general software startup industry has built their own version of video game industry goggles; glamorize the startup lifestyle and culture so much millions of kids will compete with each other into a race to the bottom. There's probably some succinct German compound word for this dynamic and if there isn't, I hope some German speakers can suggest some here so I can add it to my lexicon.
To be honest, I don’t think most people that have been working for startups for more than fives years even think much about their stock options unless they are like engineer no 1 or 2. And honestly that is often a minimum 10 year commitment so maybe not even then.
There is always the chance you’ll get super lucky, but investors and founders have become experts at extracting the maximum possible portion of the value created. To the point where there isn’t a whole lot left for anyone else. Workers included.
It depends on the class of workers. I'd agree with you w/r/t most wage earners being paid in transparent manner. But I think the GP comment was referring to technology workers (given the context of HN.) In the case of tech workers, many are paid in very complex ways.
If you have illiquid stock options in a private company, and especially if you have taken a below-market salary as many startup employees have, your compensation is about as complex as a CDO. Just like a CDO there are multiple tiers above you that need to be paid out before you ever get paid.
Unlike a CDO, where you can actually pull up the details on the tiers above you (tranches), at startups as employees, you dont get to see the cap table, so the whole maze is invisible too!
Worse, unlike a CDO where you can sell at any time, here you have to exercise and hold stock for some far-away liquidity event that usually doesnt happen. So you have an invisible maze, and then a pot of gold at the end, perhaps. Or not.