How Employee Stock Options Can Influence the Value of Ordinary Shares

Tweets by the myStockOptions. For the same reason, founders and co-founders are also usually subject to a vesting restriction. Does Facebook allow new hires to pick their work location? Tropical storm moves into South Carolina. You can find more discussion about this post on Hacker News.

(): Is this a good offer for working at Facebook as a software engineer: $,/year salary and , stock options? Does Google/Facebook offer stock options to new joiner in India? If yes, can it be sold after it is vested?

Payment in Stocks

Attorney Mary Russell, Founder of Stock Option Counsel based in San Francisco, advises that anyone receiving equity compensation should evaluate the company and offer based on his or her own independent analysis. Ask the company founders or executives about valuation. Next, consider that VCs often make 10 or more investments in different companies and hope for a big exit from one or two. In other words, they calculate the risk that most start-ups fail.

And, unfortunately, so should you. To put it simply, an exit event is when the company is either sold or taken public. And as part of your evaluation, you should ask the founders what their overarching exit strategy is. Do they plan to sell? Do they want to take the company public in five years? Should your start-up exit at a great valuation, your equity could turn into cash. But should your start-up not make it—or should it stay afloat, but never sell or go public—your equity may not turn into anything.

The number of shares or options you own divided by the total shares outstanding is the percent of the company you own. That means you and all your current and future colleagues will receive equity out of this pool. Both AngelList and Wealthfront offer an interactive tool where you can sort salary and equity compensation by position, skill level, and location. Ackwire , an online database of anonymous start-up salaries and equity, allows you to sort a similar set of data also by company valuation and head count.

If you receive stock options—the most common form of employee equity compensation—you get the right to buy stocks at a predetermined price, or strike price. The company is legally bound to set your strike price at what is deemed fair market value of the company stock when the options are granted to you.

As company grows over time, the value of stock would rise. Now, exercising your options on the same day of the grant is not common because you generally first have to vest.

Restricted stock, on the other hand, is stock granted to you with restrictions vesting being one of the most common. You will be earning the full amount over a specific period of continued employment. The most common vesting schedule for employees is four-year vesting with a one-year cliff. The idea is to avoid a hit-and-run situation, where an employee who turned out to be a bad fit gets to walk away with a piece of the company.

For the same reason, founders and co-founders are also usually subject to a vesting restriction. After this point, the balance of your equity vests to you on either a monthly or quarterly basis.

The IRS considers both cash and equity compensation taxable income. There are special rules governing when and how equity compensation is taxed.

Ask both the company and potentially a tax professional about the potential tax liability of your equity compensation to avoid tax-related pitfalls and any surprises. The most common form of stock options given to employees is incentive stock options, or ISOs. We do our best to keep the writing lively. With Facebook planning to go public next month, its S-1 registration statement is worth perusing for details about its stock plans and some of the tax issues the company and its employees face other than the obvious fact that they will be very rich and can thus afford the best tax and financial advisors!

Facebook initially granted stock options to employees during its early days but switched almost entirely to restricted stock units in RSUs granted by Facebook before January 1, , vest after two conditions: Grants made after that date do not have this liquidity condition, as they vest over four or five years see page We have been seeing this two-part vesting grant structure at other large pre-IPO companies.

Vesting will occur six months after Facebook's IPO. In comparison, employees who had stock options before the move to RSUs will see most of the stock's appreciation taxed at capital gains rates, assuming they exercised them more than one year ago. Facebook intends to net-settle the shares at vesting, instead of leaving employees to sell shares for the taxes they owe. To come up with the cash needed to meet its withholding obligations and remit the funds to the IRS, the company plans to sell stock near the settlement date in an amount that is roughly equivalent to the number of shares of common stock that it withholds for taxes see page In Mark Zuckerberg, the CEO and founder of Facebook, received nonqualified stock options to acquire million shares of Facebook class B voting stock see page These have all vested, and the option term is scheduled to expire on November 7, This attracted attention when Senator Carl Levin again proposed his bill to limit the corporate tax deduction for stock compensation.

According to an article on this in The Washington Post , some analysts calculate that the tax savings from stock compensation at Facebook could be much higher than the figures mentioned in the company's registration statement. Depending on the size of the RSU grants relative to previously made stock options grants at Facebook, a basic calculation shows that, given the stock-price appreciation, employees with RSUs would be sitting on much larger gains if they had received stock options.

The blog Inside Facebook also wonders whether Facebook employees would have been better off with options, at least from a tax perspective. While employees would have had the opportunity to exercise shares earlier, when the spread was small, and to start the capital gains holding period sooner, they would also have had to come up with cash to hold the stock while risking the possibility that a liquidity event did not occur.

Given the big tax bills that employees at Facebook will incur, along with the much larger upside they would have realized if they had received stock options instead of RSUs, we wonder whether other pre-IPO companies will rethink whether to grant stock options again. Some private companies use a special type of stock option grant that allows immediate exercise , after which the stock received is subject to vesting.

One reason for granting this type of option is to let employees start the capital gains holding period earlier and to allow them to decide when they want to pay the taxes i. Digg This Save to del. You can follow this conversation by subscribing to the comment feed for this post. The letters and numbers you entered did not match the image. As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

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Major Uses of ESOPs

Facebook benefits and perks, including insurance benefits, retirement benefits, and vacation policy. Stock Options; Equity Incentive Plan; Supplemental Workers' Compensation; Charitable Gift Matching; Glassdoor is your resource for information about Facebook benefits and perks. Learn about Facebook, including insurance benefits /5(). Facebook, Inc. (FB) Options Chain - Get free stock options quotes including option chains with call and put prices, viewable by expiration date, most active, and more at Facebook Employees' Favorite Perks -- Here's 8 of the Best. with everything from burgers and fries to vegan options. General Electric's Stock Isn't Cheap Enough Despite Being Near Record Lows.