How to Discuss Stock Options with Your Team | Both Sides of the Table http://bit.ly/a4Ih00

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I was thumbing through Twitter messages on my Blackberry on Monday (I use Twitter as a “mobile first, web second” product) when I saw the following Tweet (see graphic).

I
resisted the temptation to jump in with a response because I knew it was
too complicated of a topic to discuss on Twitter.  But I thought I
should do a quick post on the topic.

1. Options are gravy -
I lived through the first dot com era where we used stock options as a
recruiting tool.  I freely admit this (along with nearly everything
between 1999-2000) was a mistake.  We set our sites on our IPO price and
then worked back to our current valuation and  showed potential
employees what we thought they could earn (with all legal caveats) if
the company was successful.

The
stupid thing is we sort of believed it ourselves.  If Ventro was worth
$8 billion on $2 million of sales surely a paltry $1 billion would
suffice.  Goldman Sachs was an investor and the assured us an IPO would
happen and riches would be had by all.  I think they believed it, too.

We
obviously attracted the wrong people for the wrong reasons and this led
to a lot of disappointment.  We had a lot of re-setting of expectations
to do.

Options
are obviously a very important economic motivator for your first 3-5
employees and your most senior management team.  But unless you become
Facebook or Zynga they likely aren’t going to pay off big for everybody else.

So I
developed this standard line that I used for all employees.  I’ve said
versions of it on this blog before so I hope it’s not too repetitive.
 But it’s critical to get this right:

“Join our company if you think you’ll learn from being here.  I think you will.

Join if you think your career will
progress because you’ll be given more responsibilities than elsewhere
and if you’re good at what you do you can move up quickly. We’re a
meritocracy.

Join because you know you’ll be earning
less than you could elsewhere at some meaningless job cranking out
non-core code, producing Powerpoint slides or shuffling paper.  You can
always earn more.  But join here if you want to grow.

Join because you like the culture.  You think you’ll have fun.  You’ll consider your colleagues close friends.

Join because in three year’s time when
you look at this job and this company on your CV you’ll feel proud and
it will be part of how you got where you were going.

Join because as we grow our ability to reward you will grow and your income will grow with our success that you contributed to.

We give out stock options.  I hope
they’re worth money to you some day.  But let them be “icing on the
cake.”  If they pay off handsomely that’s great.  But don’t count on it.
 Don’t let it be your motivator or your driving decision.

Not because we don’t want them to be
valuable, but because we don’t want to create an “options culture”
around here.  Option cultures are corrosive, create the wrong incentives
and attract the wrong sort of people.”

I’ve said similar hundreds of times.  And I
believe it.  If you find out one day that company you went to work for
was Facebook then consider it the lottery.  And that would be nice.

But if you’re the CEO who is spinning up a story about how the options for http://bit.ly/a4Ih00