3

I recently started a job at a startup. This means I am working longer hours for less pay than at my last job (which was an established company). A big part of the reason I accepted the job was the equity that was promised-- the hope is that with some luck and a lot of hard work, it will pay off in the end.

Now, after a month of working here, the CEO is still delaying the options grant paperwork. He has been promising it 'in the next few days' since before I started. He says that it will be backdated to my start date, so the vesting schedule will start then. This all seems like it should be fine, and work out in the end, assuming the paperwork comes in before the next time the value of the shares goes up (which would have tax implications).

So, I want to be accommodating to all these delays, and just go with the flow, since once we work this out, I hope to be with this company for several years, so I want to build a good relationship with everyone. On the other hand, if I am being jerked around and they are not going to give me what was promised in the offer, then I should probably figure that out sooner than later.

To clarify, my offer letter did specify (in writing) how many options I would be given (and what percentage of the company they would represent), but it did not specify the exact timing. In subsequent emails and verbal conversations, the CEO said that the final options grant paperwork would be ready 'in the next few days'.

How long should I wait for promised equity at a startup, and how can I find out where I stand?

|improve this question
  • 2
    Did your offer letter specify your option grant? Please edit your question to let us know what you have in writing. You don't have to mention the number of shares or any pricing information, but knowing the rest of it will help you get good answers. – O. Jones Jun 21 '14 at 15:02
  • 1
    @OllieJones yes, my offer letter did specify the option grant, but not the specific timing. I edited to elaborate. – new startupper Jun 21 '14 at 18:56
  • 1
    I edited to put the question in the body too. Some people, after reading a long post, are helped by seeing a reminder of what the question is at the end. Hope this helps. – jmort253 Jun 21 '14 at 19:09
  • 1
    Since equity grants often require board approval in startups , it is not unusual to have to wait a month or more for the official paperwork. I really would not worry about it that much, especially if the amount of the grant is in the offer letter. Hiring a lawyer would be overkill. – Christopher Barber Jun 22 '14 at 4:25
10

I have been a boss in stock-granting startups. We always spelled out the terms of the grants in our offer letters to employees. We considered those letters to be binding. Hopefully that is your situation as well.

Here are some observations about stock option (or restricted stock) grants.

  1. Your CEO has said your grant will be backdated to your start date when it gets done. That's good, that's legal, and it's fitting and proper.

  2. The board of directors needs to approve all grants. Their approval should be routine as long as the grant is consistent with the budget for stock.

  3. So, the grant paperwork can't be completed until after a board meeting. Then, somebody on your executive team or maybe the company's lawyer will whip up the paperwork and give it to you. They may be waiting until there's a batch of folks to get grants.

  4. Speaking for myself, I always considered my colleagues to be investors as well as employees. It's a vital part of our company motivation and morale. I was always happy to take "investor relations" questions from employees, like "where the heck is my grant paperwork?" or "what does this clause about 'participating preferred shares' mean for me?"

  5. When the company was in a financing cycle that would change the stock price, we scrambled really hard to finish pending grant paperwork first to avoid the tax consequences you mentioned.

  6. I do not think you'll cause any kind of offense by asking (politely) what's going on with your grant paperwork. (If you do cause offense, that's not a good sign for the quality of your executive team. You need to know that now, before you sink a lot of time into this project.)

  7. Your company's executives are hopefully working on other things. Don't assume they're malicious by going slow on this paperwork. Maybe they're creating or selling product! As a shareholder that's what you want them to do.

Don't worry too much as long as you have a written offer letter with the grant. In any case, you should ask what's going on.

|improve this answer
  • Thanks, this is very helpful. The last time I asked, he explained the whole lawyers -> board-approval -> lawyers again cycle. I guess my concern comes from the fact that over the last few months, he didn't mention this whole process, and just kept implying that the paperwork would be done much sooner. He has always been open to me asking about the status, and I also hope he is busy with other things (growing the company, raising capital, etc). I am trying to give him the benefit of the doubt and not assume malice, but I am also just trying to make sure I don't let myself be taken advantage of. – new startupper Jun 21 '14 at 19:02
  • 3
    The only thing that really matters is the grant date (unless your executives really foul things up and do something dumb with adverse tax consequences to you; hopefully their board and lawyer won't let them do that). We never made promises about when we'd have the stock paperwork for employees because of all the variables (board, lawyers, busy with other things). But we did try to get the paperwork done quickly; the entire point of stock options is to keep people motivated. – O. Jones Jun 21 '14 at 19:12
5

How long should I wait for promised equity at a startup?

0 seconds.

Seriously, a verbal promise isn't worth the paper it's printed on.

Worse than that, your situation seems to indicate that your boss doesn't follow through on the actual implementation of things - a vital trait to the success of a startup.

I would recommend you have a chat and put your foot down. "You promised me all these things, and I've given you plenty of time. We need to get this in writing."

|improve this answer
  • 1
    I just edited the question to add that the offer letter did promise the options in writing, and that I am now just waiting for that promise to be fulfilled. – new startupper Jun 21 '14 at 18:57
  • Did you get the timing in writing, or get that updated so there's a clear delivery date? It seems that's where the ambiguity is. – jmort253 Jun 21 '14 at 18:58
  • I agree, that is where the ambiguity is. It seems that most of the timing promises were verbal, except for the first one, which was just 'soon' (in an email), where he said the lawyer was working on it and he would get it to me when he got it. – new startupper Jun 21 '14 at 19:10
  • 1
    If there's no time for when the equity will be given out...get to a lawyer, find out if this promise is worth anything and/or enforceable. It may not be realistically enforceable, if there isn't a date or some kind of term (ie, no later than nine months after hire date) Speak with a neutral third party, find out what your options are and are not, find out the next steps you should take to reach your personal goals. Work with the company, by all means...but do so from a position of knowing what your own options are. – user22432 Jun 22 '14 at 1:48
3

I've had friends that have been screwed by "promised" equity not coming through before a buyout or other such event happened. And it wasn't always malicious and planned, it was busy founders having other more important things to do - and then when they're staring at a briefcase full of money and thinking about their own exit strategy, strangely the concept of spreading the wealth to those who deserve it but might not have ironclad claim to it seems less desirable.

You can still be friendly, and understanding about "well the board, lawyers, etcetera..." But just like with your work, you ask them to provide a date and then stick to it. "Okay, I understand, but you realize I have some exposure here until my options are in writing. Can you commit to a date when it will have happened?" If it's part of your compensation package, then it's kinda like them not paying your paycheck, right? It'll never get to the top of their priority list without some urging. "Let's agree that it will happen by June 1." Then if that goes by and you're still getting shucking and jiving, you look for jobs that actually pay.

|improve this answer
  • Wow! June 1? That's a long time to let it slide! – Amy Blankenship Jun 22 '14 at 0:21
  • That's what we like to call "an example." – mxyzplk Jun 22 '14 at 0:26
3

Do not wait a second longer. Go and speak with a lawyer - NOT to start legal action, but to get an informed read on what your situation actually is (what can be enforced legally, now or in the future) versus what you think your situation might be.

In regards to money and vested shares: either you like working there right now, for what you're doing/who you're working with/what you're earning, or you're looking for something else. Period. The era of the scrappy startup-that-could that's just waiting for its solid-gold IPO is not gone and never will be entirely...but it's less of a sure thing now, than it was, say, 15 years ago.

Getting paid in equity or stock options is like getting paid with discount coupons for lottery tickets. There's no guarantee that a company's stock will take off, or even pay out decently in the long run. Unless you know how to evaluate the market and the product, and feel confident that this thing will succeed financially, any money you're "promised" is a complete and utter gamble. It's soft money. It isn't there yet, and you shouldn't plan as if it is a sure thing, because it might not ever show up.

If I were in your situation, I would go and speak with a lawyer to ask what my options were / to get a realistic legal read on the situation, with regards to my rights and my responsibilities, and what I can expect "firmly" versus "maybe." Take any written communications you have with you, document everything in regards to this matter just in case there is ever any question, save copies of any and all communications you've received or paperwork you've signed. You have to figure out what situation you're really in (versus what situation you think you're in), before you take any concrete action.

|improve this answer
2

We can presume that you commenced working with this employer only after having been given your copy of the fully executed employment agreement. That being the case, the EA must spell out the detail of when, why and how the equity component of your remuneration package will be initiated, and by whom.

Re-read the EA, discover all of the detail astutely, then take your situation to the appropriate person in house; that is, the HR officer or your department director, or whomever.

You mention "the value of the shares goes up", if this is a listed company, then there must be company articles with respect to the matter of equity being available to be in remuneration packages.

You must re-read your EA, and become fully familiar with how the employer's business is structured, so that you can raise your issues with the right people and follow the legally appropriate process: Whether or not it is a public company.

However friendly the employer is or purports to be, you must be fully compliant with the EA, and the company's rules, then be sure to make and keep notes of your communications about this matter as you progress it. Good luck.

|improve this answer
  • 1
    My offer letter did specify the 'how' part of the equity compensation, but it was not specific on the 'when' part. I edited the question to elaborate on this. The company is not publicly traded (if that is what you meant by 'listed'). – new startupper Jun 21 '14 at 19:04

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.