Why Token Stock Options Lose You Money (And How to Fix It)

If your company gave you stock options, you must determine if they’re TOKEN stock options.

NOTE: The word “TOKEN” comes from the term “token payment”: a very small payment made in acknowledgment of an obligation. So TOKEN means very small.

Many companies give you TOKEN options. Ouch!

But don’t worry. GrowthAdvisor helps you identify that and get high-value stock options instead.

RELATED : Stock Options Definition: All you need to know

What are the TOKEN options?

TOKEN options are stock options from a too-small an option pool. If you’re one of the first 40 employees who got your options from 15% of the company, then your options are high-value. But if you’re employee #500 or #1,000 who got your options from the small percentage of the company’s remaining and shrinking pool, then your options are TOKEN.

For example, if you joined as employee #3 (Market Associate) and got 0.3% in company shares from 15% of the company, you got a high-value deal.

Here is how it works:

If you get 0.3% of the company, you get 0.3% of the company. But it’s more likely that later grants are talked up by a number of shares, not by the ownership percentage. As company shares bloat, a large number of shares equates to very small ownership (and therefore a small share of the final outcome).

It may seem like you have a lot of shares, but you actually have a very small percentage of ownership.

Let’s not ignore devaluation.

To accommodate investors, each funding round the total number of shares in the company typically goes up. This is a double-whammy. It means that the same number of shares means less ownership in the company AND it means those “first 40” now own less than they were told when they got their grant (unless they are given “top off” grants to fill that gap).

Yikes.

The danger is obvious. While 0.3% of shares and 300 shares may look identical, their value may be different.

Of course, it’s important you understand that if you get hired later, you aren’t going to get as much ownership as the earlier employees. We don’t want you to think that you “deserve” 0.3% of the company when you don’t. But we do want you to know that you’re getting your fair share based on the time when you join.

So how can you tell if you have TOKEN options, and what can you do about it?

Why TOKEN stock options cripple your income

If your company gives you high-value stock options and makes it big, you win. Your options will give you more value than your salary. In some cases, they can make you a millionaire like this early Google employee—a masseuse.

But if you get TOKEN options, you lose. When you exercise them, instead of making $150K or more per year, you’ll make only $5K per year.

Big difference.

How to use GrowthAdvisor to check if you have TOKEN Options

You can do this in three easy steps.

1. Enter the data you know in GrowthAdvisor.

In your GrowthAdvisor account, enter the data you know about your company’s stock options.

2. Talk to your CFO

Ask your CFO for the missing information. Ask how much money your company has raised in its funding rounds: Seed, Series A, Series B, and so on.

NOTE: It’s a warning sign if your CFO isn’t willing to disclose this information. You’re a company shareholder. You have the right to know.

At company creation, the stock option pool should’ve been 15%. If it’s 10% or lower, they’re being stingy. And you’re in hot water.

The first 15% should go to the first 40 employees (not including the co-founders), no more than that. If the number is higher, it’s a warning sign.

At every funding round the stock options pool can grow by at least 8-10% of the shares originally in the pool. If the number is lower, it’s a bad sign.

Finally, each extra 10% of the pool should be used by the next 100-200 employees. If the number of employees sharing this portion of the pool is higher, you most definitely have TOKEN options.

And, when employees leave the company, the rest of this pool should go to the remaining employees.

NOTE: It’s up to you to hold your managers accountable for ethical decisions. For example, how much your stock options pool should grow.

3. Enter new information into GrowthAdvisor.

After you enter the new information into GrowthAdvisor, click on Career Alternatives Report. It’ll compare your present company to other companies. And it’ll tell you if you have TOKEN options.

How to negotiate with your employer to fix it

You can do this in four easy steps.

1. Use GrowthAdvisor to find out how many stock options you should’ve received.
2. Ask your employer for a new Refresh Grant to make up the difference.
3. Consider lining up interviews at other companies. Use GrowthAdvisor for suggestions.
4. At the interview, ask for high-value stock options based on GrowthAdvisor data.

How to detect TOKEN options in job offers

Enter your company’s name in GrowthAdvisor. Follow the prompts to see the ranking for its stock options package.

In Conclusion

Stock options are an important and often overlooked part of your income.

Learn how much you can earn with stock options. Learn how to negotiate the best compensation package. Then win BIG (instead of losing BIG).

GrowthAdvisor is a powerful tool that can help you. We have many more features to offer, besides what we’ve covered in this article.

So go ahead and give us a try. Get started here.

Questions? Email our team at support@growthadvisorhq.com

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