Employee Shares and Options: Read this before saying "yes"
Is this the golden ticket to wealth?
Factors to consider when looking at employee shares or options as a form of compensation.
You’ve been offered a job with a new company—congrats!—and part of your compensation will come in the form of employee shares or stock options. But what does that actually mean? Does it add to your total compensation? Will they make you rich?
There’s a lot to unpack there and it very much depends on what type of company you’re working for, whether public or private; if you have to pay to become a shareholder; what the company’s trajectory is; and how long you plan to work there.
Learn about what’s being offered
In this first video, I articulate some of the questions you need to research or ask your prospective employer about to begin to assess what they’re offering you.
Now that you’ve determined whether your company is private or public and how long you have to work there to be eligible for shares, this next video will give you some food for thought.
Consider this before taking action
If you work for a publicly traded company, your decisions are much more straightforward, and this form of compensation is immediately valuable upon vesting. If you work for a private company, your decision is most likely a pure shot in the dark, and in all honestly probably not worth anything, ever (with only the very rare exception).
Determine whether you’ll be rich
Regardless of whether you work for a public or private company, generally no, you won’t get rich. For more nuance and explanation of why that is, check out the next video.
From personal experience working in a private company where a decent portion of my theoretical compensation was in the form of stock options, I would tell you to NOT consider that part of your compensation. If the salary isn’t competitive without the options, then find a job where you’ll be well compensated in cash and enjoy the work or the team.
And frankly, if you do end up with options and are debating whether to execute upon your departure, again my experience and the failure rate of small businesses suggest you shouldn’t expect any (or much) payout. That being said, a former boss was able to fully fund his retirement (with investing for compound interest) by working for a company that was acquired for enough money to also compensate employees as shareholders. I also have a friend who worked for a company before their IPO (initial public offering) and she was pleased to become a ‘thousand-aire’ at IPO. She has continued working there.
What I haven’t touched on here is other forms of employee ownership, such as those in conjunction with Private Equity, or co-ops. Here’s a podcast episode that will provide a primer on employee ownership as part of a PE deal. If you’re interested in learning about co-ops, leave a comment or send me a message and I’ll try to bring an expert in to talk about how co-ops work.
Leave a comment below — were you offered shares or options as part of your compensation package? How was that experience?
