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"Top talent" not reading their own comp agreements, June 11, 2011

The controversial stock option arrangements at Skype have been receiving a great deal of attention in connection with the company's sale to Microsoft.


The central twist of the Skype stock option arrangement is simple.  The company had the right to repurchase VESTED stock options from departing employees at the same price that the employees paid.  This means that departing employees, even if in the money on vested stock options, could walk away with nothing.

These provisions are unusual for most groups of employees.  There were other elements around acquisition that were controversial, including several involuntary terminations.  The stock option treatment has been called everything from evil to likely fraudulent.  Whether one believes that these kinds of provisions are fair, there is little doubt that most prospective employees would look much less favorably at joining a company where such an arrangement exists.  It could be made up with higher salaries, but there should be a market penalty.

But, what is most interesting to me in the conversation is that most of the commentary acknowledges that the Skype arrangement was disclosed ahead of time.  The problem was that apparently the "top talent" at Skype didn't carefully read the legalese or consult a lawyer.  That's unfortunate.

"Employees had no idea what they were signing," according to TechCrunch.  According to Bloomberg, a product management employee at Skype whose blog entry triggered much of the attention (http://framethink.wordpress.com/2011/06/24/how-employees-get-screwed-in-private-equity-deals/) "never bothered to read" a critical document relating to the stock option arrangement.

This is a remarkably clumsy habit that still seems to affect tech veterans in Silicon Valley.  How can these smart, accomplished business people simply ignore the specific elements of their own compensation arrangements?  How can they be counted on to serve their employers' interests in building the next great category winner if they aren't diligent enough to even protect their own interests?  

Sure enough, that product management employee at least is now singing a simple tune.  In his blog he advises, "LAWYER UP — it'll be worth your while to get an attorney to carefully review all employment documents so that you know what you're really getting into."

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