The Guide to Stock Options conversations

🌈 Abstract

The article discusses the importance of managers helping their employees understand and make the most of their stock options. It covers key topics such as explaining stock options to new employees, providing additional grants to tenured/promoted employees, and guiding leaving employees on exercising their options.

🙋 Q&A

[01] The New Employee Conversation

1. What are the 3 simple questions managers should ask new employees about their stock options?

• Do they know the exercise price (the price they'll need to pay to buy the shares)?
• Do they know the current price of each share?
• Do they know what they stand to gain in a liquidation event (acquisition, merger, IPO, secondary sale)?

2. Why is it important for managers to have these conversations with new employees?

• Companies often make it very hard for people to understand the value of their stock options.
• Discussing these key details can help employees make informed decisions about their equity.
• It allows employees to understand if they are "in the money" (exercise price lower than current share price) and the potential upside in different scenarios.

[02] A Leaving Employee

1. What is the key lesson from the author's personal story about leaving a startup? The author's story shows that most people approach the decision to exercise their options in ignorance, thinking it's not worth the cost. However, not exercising can lead to missing out on significant gains if the company is successful.

2. What 3 things should managers help leaving employees consider when deciding whether to exercise their options?

1. What is the current share price?
2. What is the company's chance of success?
3. How much are they willing to spend on the investment?

3. Why is it important for managers to guide leaving employees through this decision?

• Exercising stock options can be one of the most critical investment decisions an employee will make.
• Managers can provide a lot of help in gathering the necessary information and laying out the facts to support the employee's decision.
• Without this guidance, employees may make uninformed decisions that they later regret.

[03] Final Words

1. What three factors does the article identify as making the situation around stock options worse for employees?

1. The overall taboo around talking about compensation
2. Companies not investing in educating their employees about stock options
3. Generally insufficient financial literacy in society

2. What does the article recommend managers do to address this situation? Since companies and society are not doing enough to educate employees, the article suggests it is the responsibility of managers to fill these gaps and provide the necessary guidance to their employees.