Stock Options Are For Suckers Who Accept Below Market Rate Pay

Stock Options Are For SuckersThere’s a good saying in the poker-playing community, “If you don’t know who the sucker is at the table, it’s you.” Given work compensation (cash or stock) is likely the #1 source of wealth for the vast majority of people, I think it’s important we have a thorough discussion on stock options so you don’t get ripped off.

To provide some background as to why I think stock options are mostly for suckers: 1) I am currently the CEO of a privately held online media company who has the ability to grant options. 2) I’m a consultant for a startup where I’ve accepted getting paid in options in lieu of cash for three months worth of work. 3) I’ve been an employee of a couple large financial firms and received stock (not options) as part of bonus compensation from 1999 – today (deferred compensation until 2015 due to severance negotiation). 4) I’ve worked crappy jobs growing up that not only paid me a poor hourly wage of $4 an hour, but also gave me no options or stock.

For those who haven’t been following this site since 2009, my modus operandi is to thoroughly write something against what I plan on doing in order to make sure I’m not missing the obvious. For example, “The Dark Side Of Early Retirement” was written in May, 2010, almost two years before I actually pulled the plug on Corporate America. I still think all the negatives to retiring early in the post are valid. But I’ve learned there are some great positives too about breaking free early.

Working for startups vs. traditional companies will likely make you poorer than richer because most startups fail, and most startups pay you below market rate compensation. Cash is way more valuable to an unprofitable startup than to a company with tremendous cash flow. No cash, and the startup will die due to unmet financial liabilities. Options, on the other hand, aren’t really worth anything until there is some liquidity event.

The CEO could say that each share is worth $100, but nobody really knows. Her job is to sell you the vision with tantalizing options that aren’t currently worth much to get you to work for cheaper. Your job is to make an informed decision on the likelihood of the CEO’s vision turning into reality.

Some startup CEOs make mistakes by not only paying below market compensation, but also hoarding their equity so much that they aren’t able to recruit the right people to help build their company into something extremely valuable. After all, 10% of $1 billion is worth much more than 90% of $0.

Before you accept options as compensation please ask the following simple questions:

* What is the current fully-diluted total shares outstanding?
* What is the exercise price of each option?
* What is my vesting schedule?
* Is there a cliff? If so, what is it?
* Is the company currently raising funds, and at what price?
* Do the venture capitalists have a minimum take if the company is bought?
* Will my unvested options become fully vested if the company is bought out?

The CFO, CEO, or person in charge of granting compensation should be able to answer these questions in a relatively straightforward manner. Getting 100,000 options sounds fantastic, but not so much if the exercise price is at $10 and the company recently raised outside investment at $2 a share. The stock has to go up 500% before you break even! Furthermore, if there are 1 billion shares outstanding, you only have ownership of 0.01% of the company.

Don’t be a sucker by not at least understanding the exercise price, the number of shares outstanding, and your vesting schedule. 

Your Obsession With Being The Best Is Killing Happiness

World's Happiest People

World’s Happiest People

Since I can remember, I’ve been made fun of and criticized for trying to be the best at whatever thing it was I was interested in at the time. My AP History teacher in high school was amazing and I would sit in the front of the class engrossed by all the stories he told about the Civil War and how he got to be an extra in Matthew Broderick and Denzel Washington’s 1989 movie, Glory.

At the end of the year, Mr. Stanton was kind enough to give me the AP History Award for most outstanding student. I was honored, but surprised because I wasn’t a great student and this was my only academic award I ever received. I think he just appreciated someone always attentively listening instead of dozing off like some of my other classmates.

But I disappointed Mr. Stanton in the end because I didn’t try harder. When I got the award, a couple classmates made me feel like a loser. They said I was a dork for liking history so much. As a result of such feedback, I decided not to study a lot for the AP History placement test, which could have given me college credit if I scored a 3 or better out of 5.

When Mr. Stanton enthusiastically asked how I did once he knew the scores were out, I didn’t want to tell him because I only scored a 2. I was not the most outstanding student he had envisioned and I felt horrible for letting him down.

“Sam, don’t worry about the exam,” replied Mr. Stanton. “It’s hard to remember everything in history anyway. But if you remember one thing, remember to never let anybody keep you from going for what you want. Thanks for always attending my classes and playing a good game of Risk!”

After Mr. Stanton’s talk, I began feeling angry that I let people negatively affect something I cared about. The battle was on between trying to be the best, not wanting to be a disappointment to others, and never letting anybody keep me from doing what I enjoyed again. Perhaps you’ve experienced a similar battle growing up and as an adult today.

How To Convince Your Spouse To Work Longer So You Can Retire Earlier

Retiring early on the beachOne can either work hard for their wealth, inherit their wealth, or marry into wealth. No way is the right way to get rich. Although the most honorable way is probably getting wealthy with your own two hands.

When I wrote the post, “Stay At Home Men Of The World, UNITE!” in February of 2012, I was being a little silly. The post was just a fun way of forecasting life as a stay at home man as I sought to build my online media business. Two years later there’s still a huge bias against men who are stay at home dads or non-breadwinners. Men who work traditional day jobs love to poke fun at men who don’t. Women, on the other hand, don’t seem biased at all against men who don’t work. In fact, I know several men and women who don’t work who ended up being secret lovers!

One of the strategies to retiring early is to have a working spouse. I have a couple lady friends who retired at 32 and now enjoy playing tennis and drinking chamomile tea during the day at my club as their husbands work their private equity jobs. One lady worked in advertising, and the other lady worked in corporate retail. When I asked whether either of them missed working they laughed in unison and said, “Not at all!”

During my time away from Corporate America from 2012-2013, I also met a lot of guys at Golden Gate Park (where I also play tennis) who retired early because their spouses worked. They were a little older on the early retiree spectrum (40-50). One husband’s wife is a cardiologist at UCSF Hospital. Another guy’s girlfriend is an executive at Salesforce.com. No doubt both their partners are doing well. All of the early retiree guys employed nannies to take care of their children during the day so they could play tennis as well. Gotta love it.

Thanks to the strengthening equality of men and women in the work force, more men are able to break free from corporate bondage to live alternative lifestyles. Men can be the stay-at-home parent now. Men can drink beers at the country club after a round of golf with their buddies and not have to worry as much about money anymore. The equalization of the sexes for career advancement and pay have been a big boon for men as well.

In this article, I’d like to share some tips from early retirees who successfully convinced their spouse or partner to continue working so they don’t have to. 

Interview With Sarah Wood, Co-Founder Of Unruly Media On Advertising, Entrepreneurship, London

Sarah Wood Unruly Media Co-FounderAs I’m off to London this summer for business and Wimbledon, I thought it would be a good idea to interview Sarah Wood, Co-Founder of Unruly Media, a social video advertising platform based in London. Sarah has been voted UK Female Entrepreneur of the Year by the Growing Business Awards, one of 15 Women to Watch in Tech by Inc., one of 10 London-Based Entrepreneurs to Watch by Forbes, Digital Woman of the Year by RED Magazine, and a Rising Star in Computer Weekly’s Most Influential Women in UK IT. Rock star!

Sarah is kind enough to take us out to dinner and host us at their corporate apartment somewhere north of Canary Wharf while we are there. If you happen to be in London from June 20 to June 30th, I’m happy to get a drink at your local pub.

I first worked with Unruly Media a couple years ago on a couple car campaigns for BMW and Jeep (video for Veteran’s Day). I was introduced by Courtnay, who used to work at another advertising platform in San Francisco and who now works at Unruly. The world is small, so it’s always good to maintain good relationships over time. Everybody will eventually know everybody.

London is truly one of the world’s great international cities. The last time I was there was in 2011 and I chronicled how much I spent on food, transportation, and shelter. London makes Manhattan look cheap, and San Francisco feel like a developing nation in terms of costs.

Without further ado, here’s my interview with Sarah on entrepreneurship, advertising, video, and London!

From Debtor To Millionaire: How A Windfall Changed My Life

This is a guest post from J.D. Roth, who founded the blog Get Rich Slowly in 2006 and is the author of Your Money: The Missing Manual. I first met JD four years ago for lunch up in Portland when I was still working. By that time, J.D. was already a mini-celebrity in the personal finance world through his story telling abilities and topical focus of paying down debt and living a more frugal lifestyle. We came from opposite ends of the financial and topical spectrum, but as fate would have it, we’re in pretty similar boats now.

I admire J.D. because he is a “blogging purist” – someone who writes for the love of writing first, community second, and income a distant third. Instead of an interview, I asked J.D. to share his story of how he went from debtor living paycheck-to-paycheck to financially free in just a few short years. His latest project is a year-long course on how to master your money, which explains how to slash costs, properly budget, and boost income so that you can pursue early retirement and other goals. Please enjoy this great post about struggle, loss, change, and love. 

In The Beginning

My parents

I’m a lucky man, and I know it. But for a long time, it sure didn’t seem that way.

When I was a boy, my family was poor. We lived in a single-wide trailer house in rural Oregon. My father was often out of work. When he was unemployed, things were rough. We never went hungry, but sometimes we came close. More than once, we were bailed out by the kindness of other families in our church.

We didn’t always struggle. Sometimes my parents had money, at least for a little while. You see, my father was a serial entrepreneur. He was always starting businesses. Even when he had a job selling boxes or staplers or candy bars, he had something going on the side. Most of his businesses failed, but some succeeded.

In 1977, my father sold one business for $300,000. He was supposed to receive $5000 per month for fifteen years, which seemed like a lot of money at the time. To celebrate, he went out and bought an airplane, a sailboat, and a Kenwood stereo. Life was good — until the buyer went bankrupt. Because he hadn’t saved anything from the few payments, Dad was broke again. And unemployed. We were right back where we’d started.

This “famine or feast” pattern continued throughout my entire childhood. Most of the time, it was famine — not feast.

In the late 1980s, I went away to college. Because I knew my parents couldn’t help me pay for school, I took care of things myself. I was a good student with a lot of extracurricular activities: president of the computer club, national competitor in Future Business Leaders of America, editor of the school literary magazine, and so on. Plus I had terrific scores on the the PSAT and SAT. As a result, I earned a full-ride scholarship. I worked two or three or five jobs to pay for housing and to earn spending money.

During college, I developed a spending habit. In order to keep up with my friends, many of whom seemed to be rich (as I defined it at the time), I used credit cards. I began to carry debt. At first, I only owed a few hundred dollars, but by the time I graduated with a psychology degree, I had a few thousand dollars in credit-card debt.

After college, my debts continued to mount. I bought a new car. When I had money, I spent it. When I didn’t have money, I still spent it. By the middle of 1995, just four years after I’d graduated, I’d accumulated over $20,000 in credit-card debt. It got worse. In 2004, my consumer debt topped $35,000. I felt like I was drowning. (See: How Many Credit Cards Should I Have Until It’s Too Many?)