Open guide to equity compensation

Original Article ↗ Hacker News Discussion ↗

Scope of the guide and gaps

  • Thread notes the guide is strong for private-company options but light on:
    • RSUs in public companies and ESPPs (explicitly “not yet covered” in the repo).
    • ESOPs, clawbacks/repurchase rights, partnership-style “synthetic equity”.
    • Non‑US treatment (UK and other jurisdictions called out as a “minefield”).

RSUs vs startup options

  • Consensus: public-company RSUs are close to cash (simple tax, standard shareholder rights, liquid market).
  • Private-company RSUs/options are illiquid, complex and risky; value often described as a “lottery ticket”.
  • Several reports of making more from big‑company RSUs than from multiple startup options combined.

How to value startup equity

  • Many commenters advocate treating options as worth ~$0 in compensation negotiations; don’t trade down salary for them.
  • Others push back that, statistically, expected value is >0, especially at later-stage, pre‑IPO companies.
  • Multiple anecdotes:
    • 0-for-N on startup equity, including “unicorns” that went to zero.
    • Some significant wins (6–7 figures), especially at well-known pre‑IPO companies.
  • Stage matters: safer expected value at revenue‑generating, late‑stage private firms than at tiny seed startups.

Structural and legal risks

  • Repeated concerns about:
    • Multiple share classes, investor liquidation preferences (>1x), “recaps” that wipe out common.
    • 90‑day post‑termination exercise windows forcing employees to gamble large sums or forfeit.
    • Lack of cap-table transparency; offers quoted as “X shares” or “$Y of equity” with no context.
    • Preferred vs common stock: employees often get common with worse economics and no voting rights.
  • Debate over whether practices are “fraud” vs merely harsh but legal; several argue employees should get legal advice, but most don’t.

Negotiation, alignment, and fairness

  • Some founders deliberately downplay option value and increase cash; employees often prefer this.
  • Others argue early hires are dramatically under‑equity’d; current norms are “founder/investor‑friendly”.
  • Strong sentiment that employees should see cap tables, understand dilution and preferences, and walk away if equity only pays off in extreme outcomes.

Taxes and administration

  • RSU/option tax described as painful:
    • AMT on ISOs, multi‑state allocation rules, wash-sale chains from frequent vest/sell cycles.
    • Complaints that tax software and broker reporting are error‑prone; some wrote custom tools.
  • Some recommend early exercise/83(b) and long exercise windows to reduce tax and risk.

Alternative models

  • Praise for models like Netflix/Spotify where employees choose cash vs equity mix and have long‑dated, portable options.
  • Some prefer pure-cash + bonus roles to avoid concentration risk and complexity.