Giving: is money better than options?

When I started my new job at a startup about a year ago, I started get­ting about a third [1] of my pay in stock op­tions. Be­ing risk neu­tral in donat­ing, I de­cided to spend my salary on me and donate any pro­ceeds from my stock op­tions. This let me in­crease the frac­tion of my pay I was giv­ing away with­out de­creas­ing what I keep. Math­e­mat­i­cally and eco­nom­i­cally, con­sid­er­ing just what I can give, I think this was the right de­ci­sion.

The prob­lem is, much of my po­ten­tial im­pact is from con­vinc­ing oth­ers to give, and if I have to talk about stock op­tions, ex­pected value, and money that I in­tend to give away it’s con­fus­ing and dis­tract­ing. Things were much sim­pler when we could just say “we lived on about $22,000 and gave about $45,000”. Should I switch back to giv­ing money?

It would not be an easy switch. Op­tions rep­re­sent a small chance of a lot of money, and they’re not very valuable to me per­son­ally. (Each ad­di­tional dol­lar is worth less than the last). If I were to start giv­ing a third of my com­pen­sa­tion away as cash, that would be about 23 of my pay­cheque [2]. Which would be pretty hard. Maybe I should donate some com­bi­na­tion of cash and op­tions? Mak­ing this more com­pli­cated, I had ne­go­ti­ated more op­tions in ex­change for a $10K lower salary, figur­ing that for money I was giv­ing away this was the right thing to do. Sugges­tions?


[1] You might say “how can you say ‘about a third’ when you have no idea whether your stock op­tions will even be worth some­thing ever?” What I did was es­ti­mate how likely I thought Cogo Labs was to be worth $X in about ten brack­ets ($0, $10M, $50M, …), and then calcu­late an ex­pected value as $0*P_1 + $10M*P_2 + $50M*P_3… Then I mul­ti­plied by the frac­tion of the com­pany whose op­tions would vest to me each quar­ter, and got some­thing about half my quar­terly salary. So: one third of com­pen­sa­tion.

[2] It’s 12 my salary (the last third is op­tions) but 23 of take­home pay be­cause 16 of my pay goes to taxes and other pay­cheque de­duc­tions.

(I also put this up as a blog post)