Work for Uber, Wind Up in Debt

The stock-option compensation plan causes hardship for ex-employees as long as the company stays private.

Confusion and sadness in the enchanted forest.

This post originally appeared in Money Stuff.

This seems like kind of a weird thing to do:

Two former Uber employees, both of whom left the company in 2016, told Quartz that Uber gave them just 30 days after departing to exercise their options. One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes. Both former employees took out loans from family members to make the payments, and requested anonymity to discuss their personal financial situations.

I mean, I get it: You went to Uber Technologies Inc. because you believed in it and thought it would change the world. A lot of your pay came in the form of stock options. When you left, your choice was to let the options expire worthless -- essentially giving up a big chunk of your paycheck for the last few years -- or go into debt to exercise them and keep your Uber investment. But the result is just odd. You have, potentially, more than 100 percent of your net worth invested in one company. (Not to mention some career investment: Uber's name on your resume is also an asset with fluctuating value.) You have no control over that company: Your voting rights are minimal and you don't even work there anymore. You have no downside protection: Unlike many of Uber's venture capitalists, you own common shares that are last in line to get paid. You can't sell your shares: Uber is private and liquidity opportunities for ex-employees are limited, though SoftBank Group Corp.'s tender for Uber shares will help. You've gone into debt to make a massive undiversified illiquid investment with no control rights. It is not best practices.

The obvious problem here is that this compensation scheme comes from the olden days of startups and is ill-suited to the modern era of unicorns. If you went to an old-school startup, you'd work for peanuts, get a lot of stock options, and quickly either succeed and go public (cashing out your options) or fail and shut down (zeroing out your options). Going to work at the startup was an intense undiversified career and financial risk, but you were part of a small team that directly determined the outcome of the startup. And you knew the answer, one way or the other, fairly quickly. But Uber has 12,000 employees and has been a multibillion-dollar companyfor more than four years. As I often say, it is a large multinational public company that just happens to be private. Large multinational public companies tend to hire employees and pay them like salaried professionals: They get bonuses and stock options, sure, but basically they are paid to do a job, instead of coming in as co-venturers whose own efforts will determine the future of the company. Paying big-company employees like small-startup co-venturers leads to confusion and sadness.

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