>The third reason for why individual options are probably worth less now than they used to be is that both employer and employee need to account for the fact that the time until IPO or liquidity is longer than it used to be. This is a big issue. To get the true value of offered comp, employees need to add their offered salary to the present value of the options offered. When calculating that, the further out the payout, the less it is worth today
This assumes a constant payout, which defeats the purpose of options. If there were a set date and set payout, the company should just offer cash bonuses or similar.
The value of an option increases the further the expiration date is [0]. He even says:
>You can be pretty sure that a company currently worth $10mm won't be worth $1b in 3 months, so you have a reasonable band of expectation.
Sure, but it might be in 5 years. You're granted an option as a bet that it might grow that big by the time you cash out - not to lock in some set amount of compensation 3 months from now.
Maybe I'm missing his point. Sure, employee compensation might need to be rethought - but not because options are a bad tool. Companies grant options at an early stage because of the long time horizon and high volatility [1]. That's what makes them valuable. If you want your compensation to be liquid and predictable, you should probably just ask for more cash.
>The third reason for why individual options are probably worth less now than they used to be is that both employer and employee need to account for the fact that the time until IPO or liquidity is longer than it used to be. This is a big issue. To get the true value of offered comp, employees need to add their offered salary to the present value of the options offered. When calculating that, the further out the payout, the less it is worth today
This assumes a constant payout, which defeats the purpose of options. If there were a set date and set payout, the company should just offer cash bonuses or similar.
The value of an option increases the further the expiration date is [0]. He even says:
>You can be pretty sure that a company currently worth $10mm won't be worth $1b in 3 months, so you have a reasonable band of expectation.
Sure, but it might be in 5 years. You're granted an option as a bet that it might grow that big by the time you cash out - not to lock in some set amount of compensation 3 months from now.
Maybe I'm missing his point. Sure, employee compensation might need to be rethought - but not because options are a bad tool. Companies grant options at an early stage because of the long time horizon and high volatility [1]. That's what makes them valuable. If you want your compensation to be liquid and predictable, you should probably just ask for more cash.
[0] https://en.wikipedia.org/wiki/Option_time_value [1] https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model