An Open Letter to the Employee Stock Options My Company Gave Me

Dear Stock Options,

Please do not take this the wrong way, but you terrify me.

When I took this tech company job two years ago, I had just graduated from college and moved to San Francisco on a whim. I had less than a hundred dollars in my bank account. I was living in my boyfriend’s parents’ basement that doubles as an antique Jewish bookstore, where I slept on a lumpy mattress between the washer/dryer and last year’s sukkah.

Before I met you, I didn’t know stocks existed for people like me. I thought they were only for red-faced Wall Street guys in dress shirts with rolled up sleeves, high on obscene amounts of wealth and cocaine. So when my HR department told me my new job came with an “executive compensation package” full of “non-transferable employee stock options” I could “accrue” more of over time, I said, “Neat!” and then promptly forgot the conversation because I had no idea what that meant. 

But now I’m more of a grown-up, as you can see by the fact that I moved out of my boyfriend’s parents’ basement and have a dog. I think that, as a grown-up, it’s time I address the confusing nature of our relationship.

The thing is, I don’t understand you at all. You are like Monopoly money to me. In theory, I can use you to buy all the railroads, gleefully tax everyone into the poorhouse, and then laugh about it later with Thimble and Top Hat over cocktails in our high-rise on Park Place.

But the reality is, I went to UC Santa Cruz, where I majored in Modern Literary Studies with a concentration in Smoking Pot In The Woods. Economics courses were not a part of that curriculum.

I guess I’m just looking for some advice on how to handle “us.” I feel like we’d appreciate one another more if I could turn you from hypothetical money into real money I could spend on a plane ticket to New Zealand. You’d like that too, right?

So, humor me: What does it mean to “exercise” you? I just don’t know what I need to do to make you happy.

I think we need to open up our relationship and invite a financial advisor into bed.

Tied to you forever,
Becky

 

Rebecca Pederson is an editor at Yelp. Her Aunt Leslie loves her blog.
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13 Comments / Post A Comment

ghechr (#596)

I think the first thing to do is find out what the terms of the options are. Ask your HR person for a copy of your stock option documents. Read them over. That should answer most of your questions- i.e. how long you need to hold them before you can “exercise” them, any penalties, etc.. If you still have questions about stock options, a google search will help you out with more basics. But, you know, turning to a professional for advice isn’t a bad idea either. You go and build that hotel on the Boardwalk!

barnhouse (#202)

Much depends on the fortunes of your company in the stock market. Your options when exercised can be worth a lot, or pretty much zero! I suggest reading Peter Lynch’s book, One Up on Wall Street, or any of his books, to get the foundations of an idea of how the stock market works. His books are really clear and good for anyone who wants to learn about investing WHICH YOU SHOULD! Then you’ll be able to make much better judgments not just about your stock options, but about how to make future career plans.

But basically, just to answer your question, your options can be but need not be converted into stock when they “vest”. It is VERY IMPORTANT you figure out when this is, if your company is even a little bit successful, because you don’t want to quit your job before they vest (sometimes like five years!) When they do vest, THEN you have the option to exercise. When you exercise that means you get to buy stock at fixed price, the “strike price” which is usually the price of the stock on the day the options were granted to you. You still have to buy the stock! But if your company has done super well in the market, you can buy them at the way lower strike price and sell the next day at the fabulously successful new price of five years later.

@barnhouse Thanks for the book recommendation! I pretty much know all the answers to these very basic questions – it’s just the thought of spending more than $100 dollars on ANYTHING that scares the bajeezus out of me. I wish investments were like a “choose your own adventure” book where you could read the ending first.

barnhouse (#202)

Haha!! Well that is why read a book or two about it because like everything, the more you know, the less scary.

jfruh (#161)

The biggest question to answer first is: is your company already publicly traded (i.e. could I call a stockbroker and buy some stock in it right now if I wanted)? If so, then Maria’s description above is what you need to know. If not then these options are at the moment entirely notional, and will only have value if you stick around for a company IPO, which will be like a crazed roller coaster for you, at which time you can sell the vested ones. And (as some of the people at Zynga found out!) your bosses could potentially take them away from you, before the IPO!

(In the late ’90s, I worked at a company that was created to have a dot-com IPO but never got there before imploding, and I still keep my paperwork for my nonexistent stock options, for kicks.)

barnhouse (#202)

@jfruh omg ZYNGA, I’d forgotten!! What unconscionable shits.

So yes, everything @jfruh said, by golly. But oh wait I just noticed that our author is at YELP which is indeed a publicly-traded firm. Bit of a rollercoaster, there!! They went public not so long ago. If you were to vest now, you would not be looking at too great a payday!! But if the stock barrels back up to $31 or whatever it was by the time you vest, boy howdy! That will be great, because you can have the difference in price probably between $15 or whatever the IPO price was, and whatever the stock is at when you exercise.

deepomega (#22)

WHERE DID STC GO

STC@twitter (#1,027)

@deepomega I’m still here! Did they delete me or something?

deepomega (#22)

@STC@twitter Presumably! In solidarity, I will link to my crowning glory.

STC@twitter (#1,027)

@deepomega What Billfold is the dick Nazis now?

THEY MAY TAKE OUR COMMENTS, BUT THEY WILL NEVER TAKE…OUR MEMBERS!!!

P.S. THAT WAS FUCKING BEAUTIFUL, DEEP

Meaghano (#529)

Okay I am also an English major who fell into this. Here is what I have done / would recommend:

First, go through the docs and google all the terms you don’t know. Then, ask to sit down with someone at your company and have this explained to you — the lawyer, the HR person, whoever gave you the documents in the first place. It’s in their best interest that you understand. And know that other people have done it and are taking advantage of the situation — why not you, right?

I’d also recommend getting drinks with a coworker and sharing what you know, or just sharing how overwhelmed you are. The weirdest thing about this stuff is how it doesn’t get talked about.

It is potentially pretty complex but also potentially worth paying attention to! And whether or not you exercise now or buy or sell – these can be big decisions with potentially big tax implications. But when you start to freak out, remember that this is only a good thing. Totally overwhelming but only a good thing!

Easy: Were you hired before May 15 or so? If yes, then your stock options are worth $0.

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