Palantir Buyback Plan Shows Need for New Silicon Valley Pay System
Comments on this thread are not very interesting and generally off topic.  This article points out an issue in SV which is that it&#x27;s hard for employees to get value out of options held in companies that do not go public.<p>One reason for this not mentioned in the article is that in the US the tax burden is extreme - partially because when it was implemented it expected companies to go public.<p>If you hold options in a private company you get taxed on the exercise of those options based on the fair market spread which is the difference in price between your original strike price (the price of the options when they were granted to you) and the current fair market valuation.  This is taxed as income.<p>This is problematic since once exercised you&#x27;re holding shares of an illiquid asset (since the company is not public) and they&#x27;re difficult to sell.  This means even if you save up enough money to exercise your options you&#x27;ll get hit with a potentially enormous tax bill due that year that you can&#x27;t easily sell your newly exercised options to pay for.  Additionally when you sell the actual shares after you&#x27;ve exercised them you get taxed <i>again</i> on the sale.<p>The one exception to this is if your options are ISOs (incentive stock options) then the delta between the strike price and the fair market value isn&#x27;t taxed immediately, but it does count towards AMT (Alternative Minimum Tax) and it&#x27;s fairly easy to hit the AMT while exercising options (meaning you could only exercise a tiny amount per year tax free).<p>All of these things make it extremely difficult to realize any value in a private company without enormous amounts of upfront cash and also losing roughly half to taxes.  It also makes it extremely difficult to exercise options outside of a liquidity event.  This can also make it hard to leave a company since the agreements are often 90 days to exercise after leaving or you lose your options (there&#x27;s also usually a ten year expiration date).<p>If companies in SV intend to stay private and don&#x27;t want their employees to view the options as impossible to liquidate we&#x27;ll probably see an uptick in liquidity events like this one.  The companies that value their employees will probably figure out a way to make this work.