There are many companies that offer/force/’give’ share options as part of their salary package. The conventional thinking from the Human Remorse department is that people who have a stake in their company will work harder, better and for the overall outcome improvement in the company, and thus produce better work.

But really, what chance do you have that your “share” of the company is worth something ? Are Shares as good as cash ? Are they worth having ?

From my experience and the statistics, the answer is effectively none. And this applies whether it’s a large company or a startup.

The Startup

At an early stage of your career, when you are young and not many expenses, you can afford to take gamble. At some point your life changes and you will likely need to pay a mortgage and, if you meet the right person, manage a family budget. This scenario requires a constant cash flow, with a degree of certainty.

Let me emphasise the word gamble since the vast majority of startups fail. The vast majority of startups employees get nothing of value in return for their time and effort.

You might get lucky, but since you probably believe in fairy tales and ‘wishes that just come true’ as well, I probably won’t convince you.

Also important, is that the CFO, or Board Member that arrives in the next growth phase will get far more shares than you and dilute your ownership and share of the  revenue, and this will get worse over time.

The Big Corporate

Share Options in big companies are a method for delaying the payment of salary — often to the point of never. It’s called a bonus but for the company it’s about improving cash flow and reducing the OpEx bottom line. By issuing shares for employees, the GAAP rules state that it doesn’t have to be listed as an expense, in effect it’s printing free money for the company and has no downside. In practice, the company is ‘giving’ you something that cost it nothing to give.

Shareholders don’t mind since it’s sucks in gullible employees to work harder, the dilution in share ownership is trivial, and the over value proposition is good.

And employees don’t need shares to be successful, people want to be well treated and well paid. Ron Johnson who designed and built the Apple Store said in this article:

There are lots of components to that experience, but maybe the most important — and this is something that can translate to any retailer — is that the staff isn’t focused on selling stuff, it’s focused on building relationships and trying to make people’s lives better. That may sound hokey, but it’s true. The staff is exceptionally well trained, and they’re not on commission, so it makes no difference to them if they sell you an expensive new computer or help you make your old one run better so you’re happy with it. [My emphasis.] Their job is to figure out what you need and help you get it, even if it’s a product Apple doesn’t carry. Compare that with other retailers where the emphasis is on cross-selling and upselling and, basically, encouraging customers to buy more, even if they don’t want or need it. That doesn’t enrich their lives, and it doesn’t deepen the retailer’s relationship with them. It just makes their wallets lighter.

In the modern era where job mobility is almost mandatory, you will likely change companies several times in your lifetime and thus the chance of vested options actually being worth something is pretty small since you will probably leave for a more exciting position long before the vesting period is up. That’s a by-product of companies not training people by needing new skills – so you leave to go and get them.

IT is the bottom of the Food Chain

The shares issued to the great unwashed employee mass rarely have rights to dividends, voting or decision making. The shares issues to executives and people who paid money i.e.. shareholders, gets lots of rights – including preferred dividends, first call as asset disposal and so on.

In reality, staff compensation share options have little real value and that’s why companies give them away. They don’t have true equity in the business and often don’t even pay out to employees before they leave, die, get sick, marry, get bored, can’t stand the people hanging around being lazy while they wait for options to vest etc etc etc.

See this example of founders cashing out Yelp Pre-IPO Stock Sales, or this for tips Mistakes with Stock Options

Don’t get locked in – change jobs for more money

Although stock options can be a nice incentive to stay with a company, it’s far more likely that you will achieve better financial returns by changing roles and companies, and achieving career growth. Ask anyone with several years of experience and they’ll tell you stories of moving for better prospects and more cash. IT Infrastructure is about experience, and knowledge, and once you have mastered your current technology set you don’t get more valuable to your employer (I know, That doesn’t make any sense, but it’s actually true)

The EtherealMind View

I’m assuming that you are not the owner, or co-founder of a startup or living in a bubble in the San Jose area, but one of the 99% who is doing real work in the normal world every day. You are the person down in the engine room making the IT infrastructure mojo go. I believe in a society that is more or less capitalist ( it’s the least worst system ) and that’s exactly why I like to have my cash flow working smoothly at all times instead of gambling on a big payout in the future.

The person/s who benefits from the value from your work is the shareholder, and the shareholders should take the risk since they get all the reward. The shareholder should, through the company management, pay you to work well and effectively. In reality, employee share schemes allow shareholders to reduce costs, defer spending and transfer risk to the employee – which is a neat trick.

So, when they offer you a company share plan, just nod, say “that’s nice” and move on to the cash component that you get after taxes and expenses but pretend like it never happened. Because cash is what really matters, and what you need to have a happy life. Plan for tomorrow but also live for today.

And for those of you who don’t believe me, learn how to judge risk properly by considering that for every one Microsoft / Google / PayPal millionaire (if you’ve got stars in your eyes1) , there a hundred thousand people who got nothing or very little from their company share schemes when they were laid off, or transferred to another company, or changed roles, or whatever.

But you don’t hear people talking about that over coffee or beer.

You will, in all likelihood, be better off with cash and buying lottery tickets instead. Then you could really make some money.