Many companies use stock options as a kind of funny money to attract employees whose skills might find them better-paying jobs elsewhere. Before a hefty options package sweeps you off your feet, research salaries in your field and calculate your net cash worth. Then determine the real potential gains and losses associated with those enchanted options.
"The people who become rich in an IPO are not the employees; they are the founders," Smolar says. "Job seekers need to make their employment decisions based on actual market value, and on their individual tolerance for risk.
"Some companies say things like, 'We can offer to pay you half or three-fourths of your fair market value, but we're going to make up for it in your options package.' Well, 10% of nothing is still nothing. If you can afford to accept a lower wage, then you can take a higher risk -- but be aware that it's a risk. After all, dotcom companies can and do fail."
If stock options appear in your compensation package, you should understand the following terminology before signing on the dotted line:
Golden handcuffs: The amount of money you'll receive if you actually stay with a company for your entire vesting schedule.
Vesting schedule: The time that elapses before your vest of stock options mature. Generally, a vesting schedule lasts between one and four years. Vesting schedules are designed to encourage employees to stick around to run the company in the case of a merger, acquisition, or buyout.
Strike price: The amount of money you have to pay to exercise your stock options. Generally, the strike price is significantly lower than the market value of the stock, and can be as low as 25 cents to $2 a share, depending on the time of your hire.
Read on:
Dotcom Bill of Rights: Introduction
I. Finding the Right Company for You: Team, Idea, Timing
II. Documents and Jargon of the New Economy
III. Death March: The Long Hours of the New Economy
IV. Workplace Injuries in the Dotcom Environment
V. An Internet Union: Does Collective Bargaining Make Sense When "We're All Owners Here?"
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