Skype options fake vesting – as stupid as it is evil
Recently there has been a lot of discussion (see Gigaom, CNN, and Reuters) around the options agreement at Skype in the wake of Silverlake’s sale of Skype to Microsoft. The short summary is that while the options “vest” over 5 years, you only keep your vested options if you are terminated without cause. If you quit or are terminated with cause, you lose your vested options. Yee Lee, an employee who left after a year, was surprised to learn that he would make no money from the stock options he thought had vested.
Much of the commentary has focused on the morality of the agreement. On a quick read, it appears to be designed to obfuscate what’s actually going on. I’m not a lawyer, but if the agreement was designed to deceive employees into thinking it was similar to most stock option agreements when in fact it was very different, that’s bad. But its not just bad in the sense of evil because it tricks employees out of options and makes people distrust the system. Its also bad in the sense of stupid for two reasons.
First, it will create enormous negative publicity for private equity in the technology space. In the future, private equity firms will have a harder time attracting talented tech people now that everyone has heard how they’re treated. Even if they clean up the option agreement to have more standard terms, people won’t be sure. They’ll either need to hire a lawyer, or, more likely for many entry-to-mid-level folks, just go work somewhere else because they can’t figure out if their options are “real”. If you make the cost of evaluating a job too high, lots of people won’t take it. If you believe, as I do, that employees are not fungible and getting the good ones matters a lot to the success of a tech company, this is a very costly mistake.
The second reason I think this is a stupid policy is it prevents employees who don’t want to work there from leaving. I believe that employee productivity depends on a combination of talent and passion for what they’re doing. A bunch of employees who aren’t quitting because they don’t want to lose their vested options is not a good thing. In particular, a bunch of employees who would like to be fired for poor performance (so they can keep their options and go work elsewhere) is a very bad thing.
If an employee joins and does good work for 3 years then wants to go elsewhere, its better for the company and the employee for that to happen. I’m a big believer in stability. I was at my last job for nearly eight years and the job before that for nine years. When I hire employees, I hope they’ll stay for a long time – five years or more. But I want them to stay because they love their job, not because they’re prisoners.
The Silver Lake folks are very smart, but in the attempt to outsmart the employees at their companies, they’ve created a stupid policy.