Sounds reasonable. But there's also people that are skilled but dislike change. They will be rewarded and will feel confirmed in their belief ("it will be rewarded to stay on board") this way.
There is something to be said about a lumpsum payment of $50k that is psychologically more attractive to people than the same about of money amortized over a period of 60 months. Extra 11k a year comes down to an extra $900 a month, which for a lot of people is not as psychologically impactful as getting a $50k payment. Smart strategy by the company.
Unfortunately, getting the $50K as a lump sum could have negative tax implications. If it pushes you into a higher tax bracket, you could end up paying more tax than if you got a little bit each year. Plus, you'll have the disappointment of seeing much less than $50K after all the taxes (income taxes, social security, etc.) are withheld.
Also, by having to wait five years for the money, you're giving up any possible investment gains and income that you could have made if you'd had the money earlier.
I'm not sure how easy this would be legally, but they might be able to set it up to drop most of the $50k into the employee's 401k.
The employer + employee contribution limits are currently $49k/year, so even if the employee is contributing their $16.5k max, you could mitigate a hell of a lot of the taxes.
Useless staff can still be fired, he's not offering them lifetime employment.
And I've seen first hand the damage done by getting rid of the "mediocre" people who have been around for ages in favor of a new hotshot. Discontinuity and destruction of institutional knowledge has enormous hidden costs.
That's kind of the point, to get them to stay for 5 years. It's an extra $10,000 per year in pay that is only payable if they stay 5 years. Most people leave for better pay, this mitigates that and will not always have to be paid.
If they stay til 5 years and then leave after getting the cheque that's an extra couple of years. It's also a major negotiating point on salary raises. (eg. An employee of 4 years is more worried about the 50K than rocking the boat for an extra 10K raise).
This offer like most perks is cleverly constructed to make an employee who is about to leave stay and think he is getting one over on the company by leaving the day after he gets his $50,000. (Which most employees won't actually do because they aren't sharks)
I guess it makes sense if you have been there for, say, three years that you then stay an extra two years (you didn't already plan on) before seeking a job elsewhere. Considering that any other job would have to give you 25000 more, staying is properly the best offer.
But really outside of that situation it wouldn't seem as an attractive offer. It is not difficult to imagine some other company offering you 10k more especially if you are hitting the first big milestone of 3-5 year professional experience (even if that measure is, at best, bullshit).
? The future value of money is discounted by inflation and the opportunity cost of failing to invest.
According to this inflation calculator for US, you would lose about $1000 just from inflation if you deferred your bonus for the five years from 2005 to 2010.
"What cost $10000 in 2005 would cost $11067.95 in 2010."
It's interesting how it talks about how employees aren't loyal to companies, I think a lot of this is because most companies don't show much loyalty to their employees. Although it seems more likely in start ups.
When companies show loyalty to their staff and not lay them off at the first sign of trouble, really think about compensation (so that employees don't have to consider changing jobs as the only way to get a pay rise) then they may see more loyalty from their employees.
Loyalty is for people, not abstract entities. Notions of being loyal to a company are a management invention designed to control employees, nothing more.
Loyalty to people != loyalty to a company. I'm well acquainted with the interaction between personal loyalty and employment. I've made career-altering choices out of personal loyalty that in a purely economic sense were not optimal.
But that loyalty is tied only to people, not to any company. If I'm not in a job because of loyalty to one or more people, it's got to be out of either economic factors, or because I find the work interesting/fulfilling. The entity it's associated with is irrelevant.
Couldn't disagree more, and I would have thought HN would be one of the few places not to see that view. With startups the founders and early employees often (not always) see their company/product(s) very fondly, the natural response to having created something yourself if you care about it.
And it doesn't have to be a startup, it can be any job that you become attached to. I assume it's a mix of pride in what you have achieved and the parenting instinct.
Your suggestion is insulting to many, many people who really do care about what they are working on.
It's great that you're caring about the things that you do, but what's a corporation's primary goal? increase shareholder equity
Especially, I would think, in companies that received millions of dollars of investment from outside sources (VCs). (In exchange for amounts of control by those same investors)
Pride of creation is one thing, but I would caution you against using this as a blinder: the corporation is not (and can not legally be) loyal to you. [Edit: unless you provide more shareholder equity then the next person... and then only until the person who increases shareholder equity more than you comes along]
What you are describing has absolutely nothing to do with loyalty to any one or any thing. You are confusing a lot of different concepts, like pride, emotional investment, and personal loyalty with "loyalty" to a company. They are unrelated.
Ironically, this is precisely what those who seek to instill a misplaced sense of "loyalty" to a corporation want.
Employee-company relationships are strictly business: service for compensation (usually $). Loyalty here is artificial because at any point the contract is breached (service declines, compensation is inadequate) the relationship is terminated. A business cannot choose to remain loyal to an employee if it means bankruptcy.
Relationships between people rely on more flexible rules: networking, camaraderie, common ground. A psychologist would say that these are a trade of "services" of a sort, but since nothing is inked, loyalty plays a stronger role. Unlike a business, it is not unheard of that a person sacrifice their welfare/life for their spouse/offspring.
It is misguided to expect the type of loyalty in the latter in the context of the former.
I was loyal to a company for three years. It would have been longer but I saved them 300k with a project and they laid me off the day after it went live.
Employees will see this as a deferred bonus. Applying to myself, let's say I make it to 4 years and am fired "with cause", maybe I had one too many sick days, before the fifth year. Maybe at 11 years and 10 months. That is going to be irritating.
But the other thing is that employees will factor it into their perception of compensation. At the end of 5 years after the payout, unless there is something new put in place, or a $10k raise, it's going to seem like a wage cut at that point. That issue needs to be considered, anticipated, and addressed.
Another problem is it likely knocks you into a new tax bracket that year, and possible kills off some subsidy you were getting with the new health care system so now you have to pay the full premiums, and various other similar issues, so all together it could end up being a bit less than one would get with it spread out over 5 years.
Rather than a $250,000 one time bonus at 25 years, which may or may not be possible since it's unlikely this is going to be set up in a trust account, it would be better to see a tax deferred, legally guaranteed pension plan set up and funded. In 25 years $250,000 is going to be a lot less than it is now, in a retirement investment account it has the opportunity to grow.
But, on the other hand, perhaps many people don't think in terms of retirement or taxes these days and are impressed by what seem to be large numbers and lottery payouts. If that's the case, then perhaps this is a more effective incentive than retirement benefits.
My interpretation of the article was not that they would get a one time bonus of $250,000, but that they would get $50,000 every five years for a total of $250k after 25 years.
Hm, that's a good point and would be a better system than what I was interpreting it to be since there wouldn't be the gut feeling of a wage loss after 5 years.
BTW, I should clarify I'm not intrinsically opposed at all to anything in the article, I'm just pondering about the design of the system and its potential advantages and drawbacks compared to other possible incentive systems.
Ultimately such human incentive plans are unpredictable in advance of being first done and thus the proof is in the pudding, it will be an interesting experiment to see carried through and see what the results are.
How the employees choose to see it is irrelevant if the conditions are clearly spelled out.
That said, it would not be surprising for a court to force partial payment if the "cause" is particularly flimsy or the timing excessively suspicious. Good faith is an implied part of contracts in almost all jurisdictions (even if it's not explicitly called that), and evidence of a party acting in bad faith, even if the letter of the contract was adhered to, may result in damages being awarded.
> it would not be surprising for a court to force partial payment if the "cause" is particularly flimsy or the timing excessively suspicious.
For that kind of upside, an employee might well roll the dice with a lawsuit, even if it were his or her case that was flimsy.
Some years ago, a client let an employee go (for poor performance) about a month before one of the annual stock option cliff vests. The employee sued, claiming that the company wanted to keep her from getting her next vest. The client settled the lawsuit, and soon afterwards, changed its ESOP so that the first vest would still be a cliff at one year, but then subsequent vesting would be quarterly. That way, there was much less incentive for disgruntled former employees to file lawsuits of that kind (and no one else ever did).
Apple used to have a sabbatical; at five years, you got six paid weeks off.
Well, it's not 50K, on the other hand it was surprising how many people hung on until five years, took their six weeks off (often including vacation), then quit.
It seemed to get rid of dead wood. I'm still not sure why.
It seemed to get rid of dead wood. I'm still not sure why.
My guess would be that, those people who were no longer growing at Apple, after six consecutive weeks off, filling their mind with things other than working at Apple, realized they had stagnated and figured out something else to do. It's much easier to have perspective on a situation after spending a significant period of time away from it.
I think many people find it difficult to contribute significantly after they've lost enthusiasm for their work, becoming dead wood. Staying five years might be stretching it for them.
5 years at once place in SV is pretty long. If you're getting itchy feet at 4 years you're probably going to wait the few months until the sabbatical kicks in so you can get the time off (or payout?).
IBM and many HDD companies still have the sabbatical rule. 7 years of work-ex gives you 3 months of time off (but it has to be planned and approved well in advance)
Sabatticals are an interesting thing. SGI, Tandem, Sun, Google for a while, all had sabbaticals after a period of time.
HR people note that people often don't come back from them. I think that is in part because you do get to refresh a bit and think about things and ask really deep questions like "what do I really want to be doing with my time?" A lot of things change in 5 years.
However, the idea of letting people take an extended break to recharge is a good one, if someone comes up with a good way to do that without losing employees it would be well received.
"SIB is Schneider's third company. Now 30 years old, he started his first business, a retail mobile phone company, when he was 18... [In] November of 2008... SIB was born."
The average period of ownership for his prior two companies was under 4.5 years, given that he took a break in between ("to learn to kiteboard, traveling to the Dominican Republic, Panama, Israel and Mexico"). One was sold, no word on the other.
He's asking employees to stick with a job longer than he EVER has.
And he's asking them to have faith that, if he sells again, the new owner will respect this bonus policy.
I'd have zero faith in this. But then, unemployment being what it is, I probably wouldn't quit, either.
I didn't see anything about a signed contract. A bonus is simply an incentive until it is paid and that incentive can be taken away at any time. Of course, these generally low wage employees are free to try and retain lawyers to argue otherwise, but I expect the cost of that would quickly overwhelm the value of the bonus.
A smart employee would make sure that such a contingency was added to the contract; e.g., if you sell the company at two weeks before my five-year anniversary, I get the pro-rated bonus.
When the startup I worked for was acquired, I got a retention bonus dangled in front of me as an incentive to stick around; one of the terms of the contract is that if I am laid off or if the company has a change of control, then the entire bonus gets paid off immediately.
Of course, I am confident that no matter what happens, the acquiring company will have the cash lying around to pay off my bonus. A small consulting firm... not so much. Regardless of the contract terms, the firm can always declare bankruptcy, in which case the employees expecting their $50K payout can stand in line with all the other creditors.
Yeah, escrow sounds like a good idea for a case like this. (Would escrow be enough to shield the money in case of bankruptcy? My Google-fu is not helping.)
Company directors generally have a fiduciary duty to creditors to ensure that a company is solvent.
Paying a dividend knowing that it would result in the company being unable to pay its liabilities is therefore a breach of that fiduciary duty.
However, even if there is a contract I bet it allows staff to be made redundant if the company decides not to do something without getting paid out, so that would be a possible loophole.
It's likely he made enough from the sale of his last startup that he wouldn't care about an exit. Thus, this could be his signal that he's staying in this company for the long-run. Since he doesn't plan to sell the company, stock probably won't be worth that much (unless they go public). But a 5-year retention bonus could turn out to be pretty good.
This isn't a big incentive for a tech startup employee (who could make $50K from 6 months of stock options). But for the people this guy is hiring, the bonus could be a morale booster and a pretty good deal.
Many of my coworkers have been with the company for 5 years or more. In many cases the reason for this is that they do not have many employment options because they are borderline incompetent.
CNN needs to work on their "in article" link placement (don't really know what it's called). I took a screenshot in case it's different for other users.
I saw the same thing and was also confused. It looks like a section heading, so I went through trying to find the explanation of who was sleeping with whom in this company...
I'm not really a fan of these game theory-style targets, they just bring out the worst in people. Being an employee at a business for a long time should be the result of an excellent environment, not from being bribed with a long term financial milestone.
I didn't see this in the comments above, but the whole time I'm thinking to myself: 50k at the 40% bonus tax rate == 30k. That's still nice, but that's significantly less than if they just paid you that over the course of 5 years.
It's just another form of stock options except cash always sounds better if the stock is going nowhere or your company doesn't have any stock to give. It's also an approximate 10% yearly bonus held for 5 years. I would rather have the bonus up front instead of the carrot on the string deal.
Get it in writing and make sure it can't be taken away. Google had a leave policy after 5 years of tenure that they yanked during the great shrinking of 2008-9. You could go off for something like 9 months and your options would continue to vest. I think maybe even your health insurance stayed active, too. Then you could come back and keep on going.
Apparently they had a problem with people taking leave and then never coming back. Instead of fixing the actual problem (people not wanting to return -- wonder why...), they took away the benefit.
This was pretty crappy for those of us who were pretty close to it, or who had earned it and hadn't scheduled it yet.
I wonder what the value of 50,000 dollars five years from now is in terms of today's dollars considering inflation ,another five rounds of QE and a probable economic crisis.
Perhaps my odds are better if I just bought $2000 worth of silver and did absolutely nothing else.
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[ 26.0 ms ] story [ 431 ms ] threadWhat do you do to keep the good ones that could get a job that pays $11K/year more and so in 5 years they would have $55K ?
Explicitly valuing staff retention means that he probably also recognises the value of company culture, group ownership, and so on.
Also, by having to wait five years for the money, you're giving up any possible investment gains and income that you could have made if you'd had the money earlier.
The employer + employee contribution limits are currently $49k/year, so even if the employee is contributing their $16.5k max, you could mitigate a hell of a lot of the taxes.
And I've seen first hand the damage done by getting rid of the "mediocre" people who have been around for ages in favor of a new hotshot. Discontinuity and destruction of institutional knowledge has enormous hidden costs.
I wonder how many people will stay 5 years, collect the (one-time) payout, then leave shortly thereafter?
If they stay til 5 years and then leave after getting the cheque that's an extra couple of years. It's also a major negotiating point on salary raises. (eg. An employee of 4 years is more worried about the 50K than rocking the boat for an extra 10K raise).
This offer like most perks is cleverly constructed to make an employee who is about to leave stay and think he is getting one over on the company by leaving the day after he gets his $50,000. (Which most employees won't actually do because they aren't sharks)
But really outside of that situation it wouldn't seem as an attractive offer. It is not difficult to imagine some other company offering you 10k more especially if you are hitting the first big milestone of 3-5 year professional experience (even if that measure is, at best, bullshit).
According to this inflation calculator for US, you would lose about $1000 just from inflation if you deferred your bonus for the five years from 2005 to 2010.
"What cost $10000 in 2005 would cost $11067.95 in 2010."
http://www.westegg.com/inflation/
When companies show loyalty to their staff and not lay them off at the first sign of trouble, really think about compensation (so that employees don't have to consider changing jobs as the only way to get a pay rise) then they may see more loyalty from their employees.
But that loyalty is tied only to people, not to any company. If I'm not in a job because of loyalty to one or more people, it's got to be out of either economic factors, or because I find the work interesting/fulfilling. The entity it's associated with is irrelevant.
For stock ownership in a startup it makes more sense as they have to stay PLUS contribute to the companies success.
And it doesn't have to be a startup, it can be any job that you become attached to. I assume it's a mix of pride in what you have achieved and the parenting instinct.
Your suggestion is insulting to many, many people who really do care about what they are working on.
Especially, I would think, in companies that received millions of dollars of investment from outside sources (VCs). (In exchange for amounts of control by those same investors)
Pride of creation is one thing, but I would caution you against using this as a blinder: the corporation is not (and can not legally be) loyal to you. [Edit: unless you provide more shareholder equity then the next person... and then only until the person who increases shareholder equity more than you comes along]
Ironically, this is precisely what those who seek to instill a misplaced sense of "loyalty" to a corporation want.
But I never said loyalty to abstract entities didn't exist, the implication is that it's horribly misguided.
But then why is that loyalty misguided?
How does it particularly different from loyalty to people (which you seem to think isn't misguided)?
Relationships between people rely on more flexible rules: networking, camaraderie, common ground. A psychologist would say that these are a trade of "services" of a sort, but since nothing is inked, loyalty plays a stronger role. Unlike a business, it is not unheard of that a person sacrifice their welfare/life for their spouse/offspring.
It is misguided to expect the type of loyalty in the latter in the context of the former.
Employees will see this as a deferred bonus. Applying to myself, let's say I make it to 4 years and am fired "with cause", maybe I had one too many sick days, before the fifth year. Maybe at 11 years and 10 months. That is going to be irritating.
But the other thing is that employees will factor it into their perception of compensation. At the end of 5 years after the payout, unless there is something new put in place, or a $10k raise, it's going to seem like a wage cut at that point. That issue needs to be considered, anticipated, and addressed.
Another problem is it likely knocks you into a new tax bracket that year, and possible kills off some subsidy you were getting with the new health care system so now you have to pay the full premiums, and various other similar issues, so all together it could end up being a bit less than one would get with it spread out over 5 years.
Rather than a $250,000 one time bonus at 25 years, which may or may not be possible since it's unlikely this is going to be set up in a trust account, it would be better to see a tax deferred, legally guaranteed pension plan set up and funded. In 25 years $250,000 is going to be a lot less than it is now, in a retirement investment account it has the opportunity to grow.
But, on the other hand, perhaps many people don't think in terms of retirement or taxes these days and are impressed by what seem to be large numbers and lottery payouts. If that's the case, then perhaps this is a more effective incentive than retirement benefits.
I agree with your other points, though.
BTW, I should clarify I'm not intrinsically opposed at all to anything in the article, I'm just pondering about the design of the system and its potential advantages and drawbacks compared to other possible incentive systems.
Ultimately such human incentive plans are unpredictable in advance of being first done and thus the proof is in the pudding, it will be an interesting experiment to see carried through and see what the results are.
That said, it would not be surprising for a court to force partial payment if the "cause" is particularly flimsy or the timing excessively suspicious. Good faith is an implied part of contracts in almost all jurisdictions (even if it's not explicitly called that), and evidence of a party acting in bad faith, even if the letter of the contract was adhered to, may result in damages being awarded.
For that kind of upside, an employee might well roll the dice with a lawsuit, even if it were his or her case that was flimsy.
Some years ago, a client let an employee go (for poor performance) about a month before one of the annual stock option cliff vests. The employee sued, claiming that the company wanted to keep her from getting her next vest. The client settled the lawsuit, and soon afterwards, changed its ESOP so that the first vest would still be a cliff at one year, but then subsequent vesting would be quarterly. That way, there was much less incentive for disgruntled former employees to file lawsuits of that kind (and no one else ever did).
Well, it's not 50K, on the other hand it was surprising how many people hung on until five years, took their six weeks off (often including vacation), then quit.
It seemed to get rid of dead wood. I'm still not sure why.
My guess would be that, those people who were no longer growing at Apple, after six consecutive weeks off, filling their mind with things other than working at Apple, realized they had stagnated and figured out something else to do. It's much easier to have perspective on a situation after spending a significant period of time away from it.
HR people note that people often don't come back from them. I think that is in part because you do get to refresh a bit and think about things and ask really deep questions like "what do I really want to be doing with my time?" A lot of things change in 5 years.
However, the idea of letting people take an extended break to recharge is a good one, if someone comes up with a good way to do that without losing employees it would be well received.
The average period of ownership for his prior two companies was under 4.5 years, given that he took a break in between ("to learn to kiteboard, traveling to the Dominican Republic, Panama, Israel and Mexico"). One was sold, no word on the other.
He's asking employees to stick with a job longer than he EVER has.
And he's asking them to have faith that, if he sells again, the new owner will respect this bonus policy.
I'd have zero faith in this. But then, unemployment being what it is, I probably wouldn't quit, either.
They should get the funds placed in escrow.
Of course, I am confident that no matter what happens, the acquiring company will have the cash lying around to pay off my bonus. A small consulting firm... not so much. Regardless of the contract terms, the firm can always declare bankruptcy, in which case the employees expecting their $50K payout can stand in line with all the other creditors.
Yeah, escrow sounds like a good idea for a case like this. (Would escrow be enough to shield the money in case of bankruptcy? My Google-fu is not helping.)
Paying a dividend knowing that it would result in the company being unable to pay its liabilities is therefore a breach of that fiduciary duty.
However, even if there is a contract I bet it allows staff to be made redundant if the company decides not to do something without getting paid out, so that would be a possible loophole.
This isn't a big incentive for a tech startup employee (who could make $50K from 6 months of stock options). But for the people this guy is hiring, the bonus could be a morale booster and a pretty good deal.
there is no real trust in employment...to a lot of people they'd just see it as an added incentive for the boss to fire you at the end of 4th year.
Companies that DO pay me what I'm worth do so at the time, not a year later. And certainly not 5 years later.
CNN needs to work on their "in article" link placement (don't really know what it's called). I took a screenshot in case it's different for other users.
http://i40.tinypic.com/nxt81.jpg
I re-read that section twice trying to make sense of it...
Apparently they had a problem with people taking leave and then never coming back. Instead of fixing the actual problem (people not wanting to return -- wonder why...), they took away the benefit.
This was pretty crappy for those of us who were pretty close to it, or who had earned it and hadn't scheduled it yet.
Perhaps my odds are better if I just bought $2000 worth of silver and did absolutely nothing else.