"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options.
They do face the gnawing possibility that they could be rich, if only they could sell immediately, or keep the options for later, or or or ... if only!
But they can always just find another reasonably interesting job and get on with a pretty good life. I'm as interested in big success as the next guy, but let's be reasonable - these handcuffs are a lot more like "golden handcuffs" than actual handcuffs (or indentured servitude).
You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes.
Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work, that compensation can be taken from them if they leave the company.
Options are inherently risky and should be accepted as compensation with the knowledge that there is a non-zero chance that they might turn out to be worth nothing. What's described in the article is an interesting way for those options to be effectively worthless, but it's not materially different (for an option-holding employee without unlimited means) from Uber going bankrupt or having all unvested options cancelled as part of an acquisition.
If an employee wants guaranteed compensation, they can negotiate for a cash-only package. If they want stock-based compensation that is not vulnerable to this particular loophole, they can go work for a publicly traded company that hands out RSUs.
The twist here is that the options end up worthless despite the hard work of the employee that leads the company to be successful. The options are supposed to incentivise this. Something about the incentive structure is wonky---in the case of Uber going bankrupt then the options "should" be worthless. But if Uber succeeds, then the incentive should pay out.
But options can end up (near) worthless anyway, for a number of other reasons. The company could go bankrupt. It could a new set of preferred shares that take priority over the current shares. It could get bought for a pittance. Granted, few of these probably apply to Uber, but they are all things that happen to companies in the broader space of start-ups.
The reason we're focusing on the 90-day clock for exercising options (and the attendant bill) is that it's something that happens to a single employee when he or she leaves the company, as opposed to something that affects all the employees all at once. But I'm not sure that changes the aggregate analysis. It feels different, but I'm not sure that it is different. When you an employee joins a start-up, he or she is taking a risk that part of their compensation could end up worthless. The corresponding reward for that risk is the chance for that compensation to be worth beyond their wildest imaginings. If that risk/reward ratio is not to their liking... well, Google is hiring, aren't they?
I agree. I think that extending the exercise period to something like seven years (as suggested elsewhere) would essentially fix this problem at the individual employee level. The employee shouldn't face risk that their option will end up worthless just because he or she makes the fairly reasonable decision to seek employment elsewhere.
As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair. This isn't the result of some kind of secret court deciding that it's how a company should pay employees. Adults are consenting to this arrangement.
There is only so much "fair" to be had in business. It's not like there aren't 1,000 other "mini ubers" that want to own the market Travis and Co built.
I don't think anyone believes that the issue with indentured servitude is that it was enforced by contract. As a society, we have decided that there are certain things you can't sign away (e.g., your freedom) and there are certain things you can (e.g., your right to exchange an illiquid asset for cash).
The GP's point is that calling this arrangement "indentured servitude" is more than a little dramatic.
I read it as hyperbole for the sake of making a point. I don't think the OP meant it literally.
But, debating that term seems to be getting away from the main point--that an employee could have an option on a sizable asset with no way to assert ownership of the asset, despite having fulfilled the vesting requirements set forth in the stock option agreement.
I'm not sure it is getting away from the main point. The OP's original assertion was that Uber is acting unethically, and calling the arrangement "indentured servitude" was meant to highlight how Uber's actions are morally wrong. I disagree.
The employees who are saddled with options they can't exercise are adults who agreed to the terms of their employment. They are free to quit Uber and work somewhere else if they want. There are a number of other ways options can become worthless while you're waiting for them to vest. The employees gambled on options and are finding out that there is yet another way to lose that bet.
And I do think it's unethical to exploit this particular corner-case. So we disagree.
I can't refute your second paragraph. You're totally correct on every assertion. I just happen to think it stinks, and I happen to think Uber is taking advantage of the situation. There are other companies who recognized this issue and chose to remediate it (to their employee's benefit), rather than exploit it.
So yeah, it's another way to lose the options lottery. I'm glad I know about it now. I'll add it to my list of things to look out for.
Finding one similar fact (which sounds strange so I would question without evidence anyway...) doesn't make a point correct. Horses and dogs both have 4 legs. It doesn't make them the same animal.
> As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair.
Fair carries with it a connotation of plain dealing, that is true; but one can consent to things which are not fair in the sense of "without unjust advantage".
As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair.
I expect that the vast majority of tech employees with agreements about stock options do not have full transparency about how they work. Thought experiment: ask random (US) employees with stock options "What is an 83(b) election" and "Should you make it, and why/why not," and see how many people have coherent answers.
This behavior is absolutely ethical. They have done some work, not all the work as you have implied. Part of the basis of paying employees with options is so that they stick around - early employees know this when excepting this form of payment. This is the small price they are paying for getting rich later.
The whole point of this article is that the employees have stuck around for the agreed vesting terms, the company has been successful, and the "later" has arrived now - but they are still prevented from exercising the promised gains and will be, potentially forever (e.g. if the major owners decide to keep the company private indefinitely under current terms).
That was not the initially accepted bargain. The bargain was that they take the risk of options becoming worthless or them not staying through the vesting period. Those risks didn't happen, this is the point where they would have earned the right to cash out, but now it turns out that the option isn't actually there.
that's not the unethical part. The unethical part is that exercising the options is a nontrivially confusing, in part, because of the legal and tax ramifications... And the startups don't complain too much because if the employee doesn't take part in the equity sharing scheme (often because of decision paralysis resulting) it is to their benefit.
The unethical part is that the startup uses the equity to lure the employee, but fails to adequately warn them about the trickiness coming down the pike when that time comes.
It's not a small price and it's not made clear in the beginning when they promise shares for service. The absurdity of allowing management to make slaves of men is no small thing.
No, there really is a pretty massive material difference between a startup employee and an indentured servant. It takes extreme naiveté or extreme privilege to confuse these two concepts.
Actual indentured servants were / are treated far far worse than the average startup employee. Besides that, no one forces employees to accept equity in lieu of decent salary. Comparing startup employees to indentured servants is a horrifyingly privileged way to frame the topic.
Certainly, golden handcuffs are a much less pressing concern than actual handcuffs that the less fortunate have to deal with. But this seems to highlight that no matter how much you're earning in Silicon Valley, you're still on the lesser side of the asymmetry against the founders, VCs, and management that run this town.
I appreciate this topic and am definitely in the proletariat camp.
I've made other people rich multiple times, with my ideas and effort, and gotten dick in return. I definitely would have been better off with a corporate job.
To my shame, I honestly don't understand the accounting behind all this. You'd think I'd learn. But each time I've been screwed a new way. Not knowing how to defend myself, I've mostly opted out. Which also doesn't seem like a good strategy.
They do face the gnawing possibility that they could be rich, if only they could sell immediately, or keep the options for later, or or or ... if only!
But they can always just find another reasonably interesting job and get on with a pretty good life. I'm as interested in big success as the next guy, but let's be reasonable - these handcuffs are a lot more like "golden handcuffs" than actual handcuffs (or indentured servitude).