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The company I'm working for (for some time already) offered me and other colleagues employee stock options. They're presenting it as such a great "gift" to us and almost that we should be grateful for it.

The vesting scheme is set so that I won't get anything for a certain period. But due to the local tax laws, you'd need to pay taxes on the whole sum upfront. My calculation is, it probably will not be beneficial for me if I stay in this company for - say - less than 2 years. Until that point, I will only lose money (on the tax paid, which cannot be reclaimed). I might gain quite a lot if I stayed for 4 years, but that's really a long time for me.

I'm not really sure if I want to stay in the company long enough so it becomes beneficial. So my natural instinct would be to refuse this option.

I don't mean to be ungrateful, I think I'm doing a good job for this company (even without stocks), I don't have a specific problem with that job. Also it's not that I don't believe in this company market success, I do. But in ~2 years I might want to be somewhere else.

My concern is that refusing "such a great offer" (as it was presented by my employer) will be kind of a red flag for the employer that I'm thinking of leaving the company. I don't want to leave right now, I'm not ready for that change at this point.

So is refusing a stock option an option? When from the company perspective, I don't risk anything, "just the taxes"?

Or should I just swallow it and pay the taxes and live with the risk that I might only lose money on this? That certainly won't trigger any suspicion, but I'm not sure if it's very honest to myself.

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    Paying taxes upfront on stock options doesn't sound right, where did you get that information from? What country are you in? – Tymoteusz Paul May 30 at 11:13
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    Belgium is the country in question. And I double checked that. Paying taxes upfront might be a good thing, because you're not paying taxes on the actual profits, but on a fictional interest rate. But only if keep the option long enough. – yose67 May 30 at 11:20
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    Cheers to that. But that does not really help with the dilemma I have. – yose67 May 30 at 11:29
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    Is it a startup or a long established company? The vast majority of startups fail, so having stock options over a better salary is not a good choice. – Juha Untinen May 30 at 12:46
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    Withholding tax at grant time is very interesting: will you be expected to just pay that out of pocket, or will your employer withhold that money from your regular salary? Have you raised these concerns with them? IMO having to come up with a potentially large sum of money at a short notice to be able to benefit from this "gift" is a very valid reason to pass on it. – Egor May 30 at 13:45
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So is refusing a stock option an option? When from the company perspective, I don't risk anything, "just the taxes"?

Or should I just swallow it and pay the taxes and live with the risk that I might have only loose money on this? That certainly won't trigger any suspicion, but I'm not sure if it's very honest to myself.

I wouldn't start with either. Instead, you can tell your boss the truth that while you appreciate the offer and have no doubt that in 4 years' time this will be of great profit for you, at this time you are uncomfortable having to pay the extra tax bill.

At this point, the boss can either offer to give you the tax amount together with the options or agree to delay it into more certain times. Trying to pry into your personal financial decisions, like by saying "oh but with what we pay you, you can afford the tax easily" would be a substantial warning for me, because how you spend your salary is not his business.

Be polite and there shouldn't be any issues. Many employers try to give stock options to employees as a way to tie them into the company, and often enough use it as a way to not pay them market value, as the options are supposed to compensate it. When it's free that's great. But when you have to pay money for the privilege then it's perfectly fine to just say no.

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    You could also potentially lead this into a renegotiation of the vesting schedule. For example, instead of giving 100 shares now distributed across a 4-year vesting schedule, they could give you 25 a year that vests after a year, or even vests instantly. Although there might be some risk that such an informal agreement would be considered legally comparable to a longer vesting schedule. – Bernhard Barker May 30 at 19:55
  • I'm confused about this: "the boss can either offer to give you the tax amount together with the options"... I mean, then wouldn't you be exactly back in square 1? Your offer is now higher, but the message will be precisely, "with what we pay you, you can afford this extra tax bill". At which point... what exactly changed to make that statement no longer a "substantial warning"? What makes it so that that wasn't included in the salary originally? If he'd deliberately subtracted that tax bill from the salary and then increased it to the original offer on request, would you have been fine? – user541686 May 30 at 22:18
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    If they offer to give you the tax amount up front, that would raise the question of whether you can take just that as a bonus and skip the stock options. If you can't, why can't you? It's not like they'd be (financially) worse off from not giving you stock options. And if you can, why would you take the stock options at all? – Bernhard Barker May 30 at 22:30
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    +1 Also, regarding the last paragraph, in some cases companies will even use unrealized benefits (stock options, health insurance, etc), when calculating total remuneration. So something to keep an eye out during salary review. They may try to "pull a fast one". – Gregory Currie May 31 at 4:39
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    If the stock options are an attempt to substitute for adequate pay, the only discussion of vesting schedule that should take place is "now", i.e. fully vested. Anyone offering non-fully-vested stock options except as a pure bonus is not paying you but trying to get leverage over you. – R.. GitHub STOP HELPING ICE May 31 at 21:44
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Supplemental to Tymoteusz Paul good answer.

It looks like rejecting stock options in Beligum is not uncommon.

In the past international groups have noticed that the rate of acceptance of stock options offered to employees in Belgium was significantly lower that the global average.

Precisely for the reason you stated and the significant risk associated with it:

However, if the options go “under water,” the employee has no possibility to recover taxes paid at grant.

It sounds like the rules are fairly complicated and the taxable benefit could range between 9% and 23% of the fair market value of the stock. It may be worth to determine the actual tax liability for your specific case and do a risk analysis.

Example, let's say you get granted 10000 options at a strike price of €8 with a fair market value of €10. It's a 10 year option that qualifies for the reduced rate. The taxable benefit would be €11500 and if we assume your aggregate tax rate of 40% you would have to pay €4600 out of pocket.

Let's just the stock prices stays at put at €10 for the next four years. At the end of that period you are fully vested and if you exercise and sell you get €20000 for a net win of €15400. If the stock goes up ,it gets better, if it tanks, you lose out.

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  • Minor caveat: most options awarded in this scheme do not have a vesting period tied to employment. It's a fiscal construct to allow employers to award higher bonuses by dodging certain taxes associated with a cash bonus by awarding options instead, often on unrelated securities. If the OP has non-vesting options he can sell them they day he receives them at current (i.e. usually original) market value. – Lilienthal May 31 at 19:16
  • Why would you get €20,000? Isn't 10,000 options at €10 each = €100,000? – Robin Bennett Jun 1 at 11:06
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    @RobinBennett >I'm not super familiar with Belgian terminology, so I might have it wrong. In the US "options" means the right to buy stock at a certain price (strike price). If you get the outright it's "grants". In my example I was assuming options with a strike price of 8. So you pay 8 per share, and sell for 10/share and pocket the difference. – Hilmar Jun 1 at 11:23
  • @Hilmar , I have a concern this really doesn't answer the question at all - it's a discussion of the pros and cons. The OP just seems to be unaware that it is completely normal, commonplace, to turn down options offers - and that's what OP is asking, I believe. – Fattie Jun 1 at 12:11
  • This is the best answer, because the tax situation in Belgium is particular and unlike many other countries -- so addressing local cultural practices around it is appropriate. In Belgium, it is not that unusual to turn down options, for this reason. – Richard Rast Jun 1 at 15:29
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It is an option. In salary negotiations, you can refuse options to increase your pay. In 1999, I was offered stock options during salary negotiations to work at an SF start-up. The "dude" was telling me what a great deal these options were - how I was going to make SO much money from them. I agreed with him enthusiastically and said "I'm sure you're right - but I've got 3 of children to feed and a mortgage to pay, etc. Can you increase my salary instead?" He couldn't walk it back so he added a significant increase to my salary.

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    "Make your mortgage and kids work for you!" – DKNguyen Jun 1 at 20:15
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My concern is that refusing "such a great offer" .. will be a red flag for the employer that I'm thinking of leaving ..

No, it's completely normal to refuse option deals.

So is refusing a stock option an option?

It's completely normal and commonplace to do so.

Or should I just swallow it ..

Of course, not, just say

"Hmm, that's not for me thanks."

The heart of your question seems to be:

My concern is that refusing "such a great offer" .. will be a red flag for the employer that I'm thinking of leaving ..

On the contrary. Say in a negotiation an employer offers you some "deal!" or "incentive!". (Whether free sandwiches, options, or casual Fridays.) Say you say "No thanks" to the "incentive". If the employer then whines and hounds you about the issue ... that is a huge red flag.

To absolutely reinforce the answer, it's completely normal and commonplace to refuse option deals. You just consider them and give your answer in a day or two.

When someone says "Here's an options deal!" you answer "Good one, let me go over the paperwork and consider it this week, will let you know, cheers."

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So is refusing a stock option an option?

I think you should sidestep this altogether and just ignore the requests.

my natural instinct would be to refuse this option.

Ignoring it leaves you options if questioned without outright refusing. But the longer you can ignore it the more time you have to assess your situation. I ignored a similar request for 2 years and then left the company before ever committing.

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    What should they do if it's presented in a one-on-one setting that can't be ignored (without being extremely rude, at least) or if the company follows up on the offer or expects to hear back (one way or the other) by a hard or soft deadline? Ignoring it may just delay the problem, it doesn't (necessarily) solve it. Also, if you ignore it for 2 years, or similar, couldn't you already have had some vested stocks that would've made it worth it to accept the offer originally? – Bernhard Barker May 30 at 19:37
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    @BernhardBarker simple, just defer the decision, say you're checking if you can afford it or anything you want.... it's none of their business. And in my case no, two years the stock was not going to make me rich. I walked out with half their big clients and watched that company go from a leading position to downsizing about 80% over the next 10 years. You analyse these things long term or it's a non informed decision. – Kilisi May 31 at 2:58
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    The chief problem with this advice IMO is that the delay may also shift the exercise date back. So waiting a year may put the exercise date 5 years into the future. You're certainly not going to be able to say in four years time: "I'd like those options you promised in 2020. Can I get them now? Also, I quit in two weeks time." – MSalters May 31 at 23:44
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    It seems like you'd have to make a decision promptly if you have to pay taxes on it immediately. Otherwise everyone would just "not decide" and not pay the taxes. – Kat Jun 1 at 3:10
  • @kat so you just keep deferring until it's too late. OP doesn't want the stock, just doesn't want to be rude by outright refusing – Kilisi Jun 1 at 4:46

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