TRACEY’S PRACTICAL EMPLOYMENT TIP
OF THE MONTH*

SEPTEMBER 2008: THE LURE OF STOCK OPTIONS IN START-UPS*

You just traded in your high paying salary and a plethora of benefits in exchange for 100-hour work-weeks and a small percentage of a start-up company in stock options because you think you have just signed on with the next Google or My Space. Please keep in mind, however, that stock options do not put food on the table or pay your mortgage. They are future incentives used by small companies, particularly start-ups, to lure high-priced talent away from better paying jobs, because equity is all most of these companies have of potential value to offer. What tends to get lost in the excitement of the moment is that options and restricted stock are an enticement that can be lost at a moments notice due to dilution or termination well prior to any significant corporate event.

I am not suggesting that you stay away from all start-ups or that you should turn down the options offered. I am simply suggesting that you consider the job on its merits and not because someday your options may be worth millions. I am also suggesting that you read the stock plan and stock agreements governing the option or restricted stock award carefully so that you get a sense of what your rights are in the event things do not go as originally hoped. Areas of concern to look for when reviewing a stock plan include:

(i) What happens to my unvested stock when I am terminated?
(ii) How long do I have to exercise my vested options if I am terminated?
(iii) What type of options am I getting? Non-qualified or Incentive?
(iv) Are they Options or Restricted Stock?
(v) Is there any protection against dilution?
(vi) Does the company have a right to buy back the vested stock upon my termination and at what price?

Most important of all, find out what the tax consequences are of the deal you are about to strike. The tax liabilities can be quite steep depending on the type and amount of stock you are issued. The opportunity to negotiate these details is before you join not after so make sure you do your due diligence.

Options are a wonderful compensation and incentive tool and with just a bit of knowledge you will give you the best opportunity to reap their rewards.

Next Month’s Tip: THE NEW TREND IN STOCK AWARDS: YOU BUY IN

Monthly Tip Archive

_________________
* Disclaimer: The contents of this page are for informational purposes only and nothing herein is intended to constitute legal advice nor should anything contained herein be taken or relied on as such. Each individual executive and employee has a unique set of facts and circumstances that the general discussion set forth above may be wholly inapplicable to. Only through consultation with a lawyer from our firm in which all of the facts and circumstances of an individual’s unique situation are explored and considered can a true legal assessment of your rights and remedies be ascertained. Any use of this information is taken solely at your own risk.