This is much more of a stream of thought post (yeah, my posts can be even less well formed and more rambling!) but here goes:
How much information is due to employees @ startups who get options?
How is an employee even supposed to know what they are getting with their options? Do most employees even know enough to ask what % of the company they are receiving, and at what strike price? My wife has worked for several technology startups, and she had to press for info on her options. She’s been told how many shares she is receiving, but not what their strike value is or how much of the company they represent. She did ask and get good answers, but does the average, non-finance trained technologist/marketing person/early employee/intern know to ask this stuff? And don’t even try to get to the bottom on the preferred preference that is likely sitting on top of the common…
Does the employee have a right to know? When an employee is told they are getting x thousand options it really doesn’t mean anything – without additional information, it pretty much is like saying “you are getting some options.” Companies tell their employees how big their salaries are and often what the potential bonus ranges can be… but there is no guidance on the potential value of the options. I know it’s a lottery ticket, but for many companies it is really just a lottery ticket at best.
I really don’t want any additional work for CFOs (or any additional billing hours for accountants…) And I don’t want any private information such as non-public company valuations leaking to the public. And I don’t want to any of our CFOs to get sued in case they imply that an employees’ optinos will be worth something when they don’t end up paying off… So, it appears that I don’t suggest any real changes to the current system.
Sorry for the rambling post.
I guess I’ve just been thinking a lot about this after my recent post on the new realities of stock options.
February 12th, 2009 at 5:49 pm
excellent post Healy. Why don't employees get to know how much % ownership they get? You and I know what our % of carry is…
February 12th, 2009 at 8:55 pm
Most people know the number and the strike price. I've seen the communication focused on the option price (e.g. number x strike price), e.g. "you are getting $10K worth of options". This probably makes more sense in a public company.
I haven't seen companies volunteer %-owned and they certainly don't update on dilution events.
February 20th, 2009 at 2:06 pm
This is one of my pet peeves. How can you value your total comp package as an employee if you can't figure out how much your options package is worth?
I've had friends who have been in this situation (where company would not share % ownership) and advised them to simply value the options package at zero unless some more information was forthcoming from the company. Especially if the options package is positioned as a significant part of the comp.
Of course there are some good reasons for a private company not to share this information but I'm thinking about it from a potential employee perspective.