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This was a job posting on Linkedin, in the software industry.

The rules are that you can sell up to 30k per year. But the job offers 50k (GBP) and it seems that offering shares greatly in excess of the salary is very disproportionate.

I feel like they got together and had a board meeting and asked themselves "How can we make this scam more obvious".

Do I simply not understand, or is this designed to trick people into committing, perhaps as a bait and switch?

speciesUnknown
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  • Will you receive 90k per year? Or is it going to amount to 90k over 3 years? If you leave early, do you give up on the stock down the road? – fileyfood500 Nov 04 '19 at 01:00
  • I'm not actually investigating it, I just saw it in passing - although even if I was on the hunt for new jobs, my instinct is that something is not normal or sustainable about this. – speciesUnknown Nov 04 '19 at 01:36
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    By "you can sell 30K per year", do you mean that the stock is publically traded and there is a regular market for shares, or do you mean that you can sell up to 30K per year if you can find an investor, or do you mean that can sell up to 30K per year if you get the permission of management? Often, it's impractical or impossible to sell shares in a startup until and unless it becomes a publically traded company. – Brian Borchers Nov 04 '19 at 03:54
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    Hard without seeing a full text... – Duke Bouvier Nov 04 '19 at 21:41
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    By the way: A common way to bait employees into taking a job below market rate is by not promising them stocks but stock options. They are betting on people not having the financial literacy to tell the difference. – Philipp Nov 05 '19 at 09:56
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    But do read the fine print https://medium.com/help-me-heidi/my-company-sold-for-100-million-and-i-got-zilch-how-can-that-be-f7be0563f1f8 – blackboxlogic Nov 05 '19 at 12:38
  • For a software job, is 50K salary normal over there? It feels like this is a way for a small company to entice people to stay permanently. If you sell your stock back to the company, they get part of their equity back instead of cash just going out the door as cash. If you don't cash it out, well they are getting an employee for below market rate. – Issel Nov 05 '19 at 13:37
  • @Issel: questioner doesn't say how senior the post is, or what skills/experience it requires. There are software jobs in the UK where 50K is comfortably above market rate, and jobs where it's a serious lowball offer. – Steve Jessop Nov 05 '19 at 16:48
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    Even if it is legit, bait-and-switch opportunities abound due to "creative" ways to structure venture capital investments, some of which involve loans or special shares that pay a bonus if the company is sold for cash. If you think "I've been granted 1% of the shares in this company, so if it sells for a billion pounds I get 10M of that", you can end up very disappointed; your 1% is possibly 1% of what's left after everyone else takes their due from the sale, which can be zero. – Eric Lippert Nov 05 '19 at 17:13
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    About being able to sell 30 k per year, it feels like share vesting : https://linkilaw.com/startup-advice-tips/what-is-share-vesting/. Note that it doesn't mean you can sell 30 k per year. It means that out of the 90 k, you officially get ownership of 30 k per year. The goal being for you to stay on the long term (and not come in, cash out 90 k and leave). As stated above, you probably won't be able to sell it that easily the first few years. – dyesdyes Nov 05 '19 at 19:57
  • I always feel this puts you in a weird situation. When it's time to decide to sell or hold the stock you're trying to predict how the company will do. This gives the CEO motivation to hide problems from employees because they're stock holders. So now I can't fix the company because the boss wont own up to our problems. – candied_orange Nov 05 '19 at 20:42
  • @Philipp I don't know the difference between Stock and Stock Options, could you illustrate me? – Henrique Nov 06 '19 at 14:08
  • @Henrique Certainly, but it would not be appropriate to do so as a comment to this question. I would suggest that you ask a new question about the differences between receiving stocks and receiving stock options as an employment benefit. – Philipp Nov 06 '19 at 14:22

3 Answers3

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That would likely be a startup.

So they need a developer who can ask for a good salary, but they don't have that much money. So instead they offer shares.

If the company is successful, due (in part) to the help of the developer, they make lots of money and the shares don't hurt much.

If the company fails and goes bankrupt, the shares are worthless and cost the company nothing.

So you see, from the company's point of view it's a good deal. From the employee's point of view, it's a gamble, not a scam. You may win, you may lose. If you are at a point in your life/career where you can live fine with £50k, you can go for it.

gnasher729
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    This. it's a practical thing for the company, more than anything. They have no cash flow, but have an "idea" that they think is valuable. They are paying you a portion of ownership in that idea, instead of paying you cash. So, you need to decide: do you agree with the value they are placing on their idea? – dwizum Nov 04 '19 at 13:39
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    How does this work with the fact that the amount was given in GBP; rather than in a number of shares? According to the description as given, the employee is entitled to £90,000 worth of shares, not 90,000 shares. £90,000 of shares in a billion-dollar company is the same exact amount as £90,000 of shares in a tiny start-up. – GendoIkari Nov 04 '19 at 19:01
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    @GendoIkari that is an excellent question. My strategy is to assume whomever is writing the offer is way more knowledgeable on this subject than I and they are trying to screw me. If they really want you, they can put the deal to you in plain terms. Otherwise, look elsewhere. – emory Nov 04 '19 at 19:19
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    If the shares are publicly traded, is it legal for the company to restrict how soon you sell them? if they aren't publicly traded, is it fair for the company to quote their value? And is that 30k figure a promise to buy them from you, if you request? – CCTO Nov 04 '19 at 19:41
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    Probably important context to your answer (last line) but £50k is far above the uk living wage of £19k and a pretty decent salary – Sayse Nov 04 '19 at 20:12
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    @CTTO - it is entirely legal (and common) for incentive shares to have lock-in periods. Indeed often the share will only be legally vested in the employee over time, so it may be that the offer is actually that 30k will vest per year for 3 years. Pre vesting they are not your property and you would not get them if you leave before they vest and would need to look carefully to see what would happen if the company was sold before 3 years were up.

    He needs to see and understand the terms on which these are offered if you are regarding the equity as anything more than a vague sweetener.

     – Duke Bouvier Nov 04 '19 at 20:42
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    @Gendolkhari - If they are quoting a round-number cash value either (a) they will give him £90k of shares at whatever the current prices is for a listed company or (b) it is an unlisted company and the £90k refers to a nominal par value. I suspect the latter. – Duke Bouvier Nov 04 '19 at 20:44
  • @DukeBouvier (b) would be downright fraudulent. If I am promised £90k of shares, I would expect the £90k to be based on a current valuation of the company, not the nominal value of the shares (which can have no bearing whatsoever on the real value). – JBentley Nov 04 '19 at 20:57
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    @JBentley - not really. Lets say the company's last financing had some VC come on with £1m for 25% of the company that puts a value on the company of £4m, and £90k is 2.5% of the company. Someone may have stumped up real cash at the price.

    Or it may be a nominal accounting value - which would likely be much lower, so probably isn't it.

    For a job-ad that is pitching low-salary + upside equity they may want to quantity the upside in a way that helps get the right applicants.

    Obviously when it comes to an actual job offer, he needs to kick the tyres.

     – Duke Bouvier Nov 04 '19 at 21:37
  • @DukeBouvier That isn't the same as nominal value though. Nominal value is the price stated on the face of the share. The actual price paid for the share does not have to have any connection to the nominal value. The VC could have paid £1m for a single share with a nominal value of £0.01 for example. Hence it would be extremely misleading to place an advert offering "£90k worth of shares" based on nominal value, because that nominal value can be completely meaningless. – JBentley Nov 04 '19 at 21:40
  • @JBentley - I agree it conveys little iformation. This company could be a 2 people working on laptops at home or something substantial.

    As you observe, nominal value/share is likely to be very low, so they are probably NOT saying £90k at nominal price which would be a lot of share!

    Without the ad text we are just speculating.

    Witout the text of the ad we are really just speculating.

    For a job ad, the reason I would hope they did it was that their soberly optimistic estimate is that - with fair wind - they get to hire a £60k/year salary worker for £50k salary + £30k equity/year.

     – Duke Bouvier Nov 04 '19 at 22:00
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    As an aside, British compensation plans often include weighty non-salary components that may or may not eventuate. Bonuses can be remarkable, but not a foregone conclusion. Options and grants can certainly never mature or end up underwater. It's still an incentive. – mckenzm Nov 05 '19 at 04:59
  • @JBentley: In the U.K., the minimum for a limited company is 100 shares at £1 each. – gnasher729 Nov 05 '19 at 15:56
  • @gnasher729 That is incorrect. You can have a limited company with 1 share at £0.01. I have formed such companies myself. Companies with 1 share at £1 are extremely common. The only requirement for nominal value are that they have a "fixed nominal value" (Companies Act 2006 s 542(1)). There are other requirements for public companies that you might be confused with, but those are not 100 x £1 either. – JBentley Nov 05 '19 at 16:21
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    @GendoIkari Stock options are often new shares issued by the company. They can issue them at whatever nominal price they like. The only relevance of that "price" is for later tax calculations when you well them (assuming you do get to sell them eventually - there is no guarantee that anybody will ever want to buy them!) – alephzero Nov 05 '19 at 18:57
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    It's not just startups that do this. FAANG and other large tech companies also tend to pay more in stock than cash for more senior positions. Amazon especially, which has a strict salary cap at around 1.5x entry level pay, with further raises coming in the form of restricted stock. The purpose is the same though - offloading market risk onto employees. – MooseBoys Nov 06 '19 at 15:58
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There may be a couple more restrictions in there, but having been in a couple of companies with a similar employee share scheme it often goes like this.

You become eligible for the shares after being an employee for two years, you can start selling up to your limit after another year. So that's 3 years in the company before you get any of the share money, it then takes you another two years to sell the rest of the shares.

They'll probably be employee only shares, you don't get to keep them if you leave the company and will have to sell them back at a token rate, probably pennies.

The benefit to you is an extra 90k in the long run, depending on company performance which you now have a vested interest in. The benefit to the company is that they've tied you in for 3-5 years before you can have any of that money and it fosters some loyalty in the staff.

Separatrix
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    In the situation you describe it's best, I think, not to consider the 90k to be part of the package. Instead think, "in 3 years time if I'm still with the company I may or may not get a large bonus". Treat it more or less as you'd treat some nebulous profit-sharing scheme that the company says it plans to introduce in 3 years time. Too much can change in that time, to rely on more than your salary, and it's not healthy to let yourself get tied in because you feel it's the only way to get what you counted on. If the company goes nowhere, the shares won't pay out. Most companies go nowhere. – Steve Jessop Nov 05 '19 at 16:57
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    @SteveJessop, in terms of a startup yes. In my case both companies were market leaders and one had been in business over 100 years. It could be taken as read that it was going to work out and in such cases it's a nice scheme to have available as an employee. – Separatrix Nov 05 '19 at 17:12
  • There's a big difference between being given shares by a publicly traded company and being given shares by a startup. – Brian Nov 05 '19 at 19:28
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This is quite what my emplyoer does. Stock compensation is very common among large (American) software companies. New hires usually get a large stock grant worth around $100k or even more. These stocks (called restricted stock units, RSUs) are meant to be vested, i.e. received by the employee, over a period of several years (usually around four). The base salary they offer varies on the location. In the US, base salaries even for new grads can be up to around $150k, while the same company would offer base salaries around $50k-$70k in Europe.

So not, that's not a scam. It's very common.

adjan
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  • This is a good answer, for stocks with a clear valuation. For instance when traded publicly. If you are about to join a private company it is very easy to lose nearly all the value that you may have been promised. – Dennis Jaheruddin Nov 06 '19 at 13:53