I curious of what practices are being used to determine employee compensations packages at high tech companies.

When options are part of the package, is it usually the case that a annual value is attached to the options, and that value plus base salary is used as the total compensation amount?

The above practice would more than likely yield a lower base salary, possibly less than what is currently competitive. Has this practice worked well (or do you think it would) at the time of hiring and to retain good people?

-- Anonymous, November 05, 2000

Answers

Our policy is here.

I don't think that you can use stock options as a substitute for base salary. It's impossible to calculate their value (well, it's possible to calculate their value using Black-Scholes if you know the volatility of the underlying stock, but you probably aren't public yet, so you can't.) Stock options should be an additional reward on top of a good salary if the company is very successful.

With stock options, you face two enormous risks. The stock can go down a lot, then everybody leaves, because they are not getting paid enough, or the stock can go up too much, then it's impossible to hire people, because the new hires think that their strike price is too high.

As far as how many options to give people, read this.

-- Anonymous, November 06, 2000

Moreover, most people are now looking sidelong at options, since far too many people have been burned on them, either through honest losses (eg, the current market correction) or more devious means (siphoning equity value away from employee options through various strategies).

-- Anonymous, November 17, 2000

I've always felt that stock options were a retention plan, not a compensation plan. In other words, don't trade salary for stock; they are not the same thing and you only hurt yourself. I've got tons of worthless stock options from numerous failed start-ups. I would have done myself a great disservice if I had accepted a lower salary at these companies.

The one exception to this would be if you are getting into the company at the founder level. That is, you were getting stock options in the 6 digit range (100,000 or more shares) and the company hasn't any funding yet so they have no money. But understand that this is the big gamble; you are not just taking another job when you do this. You are betting the next 5 or so years of your life on this company and are gonna work 80 hours a week the whole time.

I guess this is how I would sum it up. If the upside of the stock options is worth, say a new car, then its not worth trading salary for the stock options. But if the upside is instant retirement, life on easy street, then maybe it is. But stock is all a big gamble, and one that most people lose. Salary is a sure thing.

-- Anonymous, March 16, 2001