How should TurnTrout handle his DeepMind equity situation?
Ok, so the basic situation as I understand it is that as part of your Deepmind offer you would get a bunch of Google stock that would become available to you over the course of around 4 years or so. This means in-expectation, for 4 years, your net worth would substantially correlate with overall Google performance, which on our worldview probably substantially correlates with how much google invests in AGI and how much it participates in the AGI race.
My sense is you want to end up in a spot where your net-worth isn’t super correlated with how much Google invests in AGI. Doing this thoroughly seems hard (since there are things like job security and overall salaries at Google that of course also correlate with Google stock), but getting to a point where you are about as correlated as if you didn’t have stock options seems doable.
Yeah, I want to have lower correlation because I want to make clearheaded decisions about deployment and research directions, which aren’t muddled by concerns like “I might get more money for making societally risky plays.”
I was somewhat worried about equity CoI, and my gut response was “I guess I’ll decline equity”, but
I didn’t realize how substantially equity contributes to the compensation package, and
it now seems like it shouldn’t be too hard to construct a portfolio with a net ~zero position in GOOG. However, that’s a question I don’t have a lot of background in.
The easiest way for doing this would of course be to just ask for a compensation package with no stock options, but many companies don’t like that. You might also be able to get a better deal here by doing your own hedging than whatever price Google would offer you for those stock options.
Ok, but assuming that you can’t just ask for a no-stock-options package, how could you potentially reduce your exposure to Google stock here?
You could just sell a contract that transfers ownership over your shares as soon as you get it, but this now creates a principal-agent problem between you and the person who you sold the shares to. They would like you to stay at Deepmind for longer so the stock options vest, but you don’t have anything to gain by that, so ideally the contract would somehow pass this incentive through to you, since I don’t think it’s the primary thing we are trying to handle here.
You could just structure this as an ongoing contract where you get money at each vesting cliff. I.e. each time you get some Google shares, a person sends you money for those shares (with a price locked in at the time of signing the contract). This does annoyingly create a liability for that person (they need to always have enough money to buy Google stock at the locked in price), but Google stock seems stable enough that probably someone is willing to buy this at not too much of a premium.
Now, let’s think about whether there is just some product on the open market that you could buy to end up with this.
One important part would be that (as with any job) I’ll be at Google for an unknown duration, and so I don’t want to commit to selling my full number of shares, and I’d also like a solution which is robust to receiving additional equity due to high performance.
Yeah, to be clear, the intent behind this contract was to have the contract end as soon as you leave Google and no longer have any vesting shares. Also yeah, seems probably doable to find some way of also having you sell additional performance bonus shares you get.
Google in particular has in-house financial advisors, so practically I’d go talk with them about this, but I’d like to figure this out for the more general case.
Man, I do have trouble coming up with a simple off-the-shelf contract that you could buy, or some personal commitment you could make, that would cause you to break even here.
Ok, so does anything go wrong with a dumb “I keep a spreadsheet of my Google returns, I commit to donate anything to prespecified charity that is above the current valuation of my Google shares”? Like, this isn’t perfect, because you would ideally like to have the current expected value of the stock in your bank account, but Google stock isn’t a meme coin and doesn’t seem that extremely high-variance, but it does really lose you quite a bit of money in-expectation.
(Also, insofar as I want the charity to get funding, I still have CoI, albeit a smaller one.)
Ok, so wait, do you know the exact dates your equity will vest?
Yes, I know what percentage will vest each month for the next 4 years, and I’ll presumably get the specifics (like exact days) soon enough.
Like, the thing that I feel like you want to do, is to sell a futures contract for Google stock that aligns with your vesting schedule. The problem here is of course that you might end up leaving Google, and then you still need to come up with the Google stock at the pre-specified price somehow.
Also, I feel like the futures contract market probably isn’t traded with that high liquidity, so you would still need to find custom counterparties here.
Ok, so what if we instead try to aim for something like “be approximately neutral with regards to Google stock?”. Is there just like a hacky thing to do that roughly works?
The naive thing to do is to just like, short Google in an amount equivalent to your total 4-year equity. I.e. you borrow shares, sell them, and then you need to produce the equity somehow over the coming years. But you really can’t guarantee you will have enough money to buy Google stock, if it goes up a lot.
I think a costless collar (selling a call to buy a put at identical strike prices) would be better than shorting, but it might not be possible given the options markets, and it leaves a range of problems unsolved (like “I don’t want to deal with margin calls”, “what if I get more equity”, and “unknown, variable duration of employment”). I could ladder the collars (ie establish new collars as I go), but that might not lock me in to the present value of GOOG (eg if the stock falls a bunch in the future, maybe no one is trading options at present value anymore, or at least the collar is no longer costless).
I feel like the variable duration here just really forces you into making a custom contract, if you don’t want any of the risk exposure, which sucks.
I want to just ask Google to give me future stocks according to their future value. EG 3 months from now, I get $X worth of GOOG no matter what. Maybe they will do that. Maybe not.
I think they key question is “how much of a loss are you willing to take to be neutral here?”. If it’s <2%, then I think it’s really hard. If it’s 10% then I think it’s quite likely you would find a buyer for the relevant contract.
I’m definitely willing to pay 2%. I don’t fear equity-induced drift much overall, though, but that comes down to factors like “how much do my decisions impact GOOG performance” and “to what extent am I helping make deployment decisions.” However, I value time/stress more heavily, and if I have to crunch a ton of annoying numbers every month (in a way I can’t hire out to a non-trusted person), that’s going to decrease my willingness a lot.
I think it’s pretty important to plan for success in things like this. Like, I agree that in the median path your decisions do not impact GOOG performance that much, but there are totally worlds where you might end up as one of the people in charge of the stop button for Google AI capabilities research, and yeah, that one will sure have a huge effect on Google stock when pressed.
Agreed. (Although if I became important, and I retained my alignment at that point, I could start up a costlier strategy which locked me in to the value as of that future date.)
Yeah, I think that’s fair. But also, whether you end up in such a position might depend on having already committed to that (like, I would feel more comfortable electing you to the stop button position if I could somehow be confident that you won’t have GOOG exposure, which would be easiest if you had already signed a contract that made you GOOG neutral), though probably it won’t be a major component.
Ideally that stop button would be handled by third parties not employed by Google (even if they’re not exposed to GOOG), but possibly that won’t be the case.
Yeah, definitely. But I sadly don’t expect that to happen.
Idk, maybe I should set up a small fund here that buys alignment-researcher equity with the obvious contracts. It’s just a 4-year contract, with more than half of the capital being freed up 2 years in, so this really isn’t that much committed capital.
I do personally kind of want to avoid GOOG exposure, but idk, does seem less important if I am not working at GOOG.
Yeah. I also want to avoid exposure for the standard risk management reasons.
Yeah, man, does really seem like there just isn’t a very simple instrument here you can buy. I think we really need someone to set up a custom contract here, and I would love it if someone wanted to do this (and my guess is people would be willing to pay like 5% premium here, so this seems like it could be a quite mutually beneficial trade).
Now that I’ve received my contract, I’ve come across language like
[Google’s Insider Trading Policy] describes company-wide policies that address the risks of insider trading, such as a prohibition on any Google employee hedging Google stock; and periodic blackout windows when no Google employee may trade Google stock.
I’ll look more into this, but this probably kills most workarounds.
How much do you think that your decisions affect Google’s stock price? Yes maybe more AI means a higher price, but on the margin how much will you be pushing that relative to a replacement AI person? And mostly the stock price fluctuates on stuff like how well the ads business is doing, macro factors, and I guess occasionally whether we gave a bad demo.
It feels to me like the incentive is just so diffuse that I wouldn’t worry about it much.
Your idea of just donating extra gains also seems fine.
As I said in the dialogue, I think as a safety engineer, especially as someone who might end up close to the literal or metaphorical “stop button”, the effect here seems to me to be potentially quite large, especially in aggregate.
FWIW as an executive working on safety at Google, I basically never consider my normal working activities in light of what they would do to Google’s stock price.
The exception is around public communication. There I’m very careful because it’s asymmetrical—I could potentially cause a pr disaster that would affect the stock, but I don’t see how I could give a talk that’s so good that it helps it.
Maybe a plug pulling situation would be different, but I also think it’s basically impossible for it to be a unilateral situation, and if we’re in such a moment, I hardly think any damage would be contained to Google’s stock price, versus say the market as a whole.
Hmm, I do think that is something that seems pretty likely to change, I think?
I expect safety researchers to be consulted quite a bit on regulations that will affect Google pretty heavily and i.e. any given high-level safety researcher currently has a decent chance to testify in front of congress, and like, I would want them to feel comfortable taking actions that definitely would have a large effect on the Google stock price (like saying that Google’s AGI program should be shut down completely, or nationalized, or Google should be held liable for some damages caused by its AI systems).
I think you’re massively over-complicating things. I think you’re over-estimating by a whole lot the impact that you COULD have on Google’s stock price, and even more over-estimating the impact on your motivation and activities based on this impact. Especially compared to the motivation/activities that will come from having the job in the first place, wanting to be aligned with your coworkers and the stated mission of the team.
I generally recommend (and follow myself, at retrospective great cost) that people diversify stock away from their employer as soon as feasible, which translates to “sell grants as soon as they vest”. This still leaves value changes between grant and vest. You’ll pay to hedge that, and have to take the risk that you won’t stay through full vesting. I’d recommend NOT paying or taking that risk.
If you’re worried enough about it, you could design a donation-intent agreement to give to a charity some “excess” vested value defined by the difference in price between (grant + some historically-justified growth) and the actual vest value. This generally isn’t fully enforceable, but the charity CAN often borrow against it, and it’s pretty strong social motivation to follow through.
But really, if you don’t want to benefit your employer and try to increase it’s value, you probably should consider just not working there.
I mean, sure, I think most (or at least a quite substantial fraction of) people working in safety roles would prefer for their employer to not exist, or to make substantially less money, but I still think there are valid arguments for them wanting to work at the big capability labs.
I think the motivational and distortional effects of being in a social environment of an organization are also huge, but they are much harder to hedge, and I think the impact of the financial entanglement is still quite substantial (though definitely less). I think if someone could spend 200 hours of getting rid of the distortionary social effects they should definitely do it, and correspondingly I think if someone can spend 20 hours of getting rid of the distortionary financial effects they should also do it, since it seems like an easy win..
This is a kind of post I appreciate and would like more of: Detailed and clearheaded explorations (as dialogues or otherwise) of weirdly-specific issues that are faced by individuals, yet have unusually-high bearing on larger issues.
It helps others in similar situations.
It demonstrates ways for people to think in broadly-similar situations.
It encourages people in weirdly-specific-yet-high-abs(EV) situations to seek out help from trusted people.
Hm, I was a bit confused reading this. My impression was “seems like there are multiple viable solutions”, but then they were discarded for reasons that seemed kind of tangential, or not dealbreakers to me, where some extra fiddling might’ve done the trick?
If I get the time later will write up more concretely why some of them still seemed promising.
It seems marginally more likely to me that Google would put people with “skin in the game” in relation to google’s stock price in positions of power.
Contracts and stuff are great and all, but have you ruled out doing it the dumb way? (dumb in opposite-of-clever sense)
IMO, the dumb way of decoupling equity compensation from decision-making is to pre-make your decisions about it, and then think about it as little as possible going forward.
My “do it the dumb way” rule around ESPP comp is to max my contribution, then sell as soon as legally possible and take the tax hit, and not try to meta-game whether or not I’d be better off holding it then selling later. I budget the ESPP as I would any other likely-but-not-guaranteed bonus of unknown size.
My “do it the dumb way” rule around equity packages is to never sell during the capital gains period. Then once it’s out of capital gains and I form a long-term financial goal for it, I set a ~multi-month “sell at this price” order for what feels like a good but realistic price, and then it sells itself automatically when it gets to that price and I put it toward the long-term goal.
Your “do it the dumb way” around equity might be pre-committing to sell it all as soon as it gets out of the capital gains period, then maybe keep a fixed dollar amount, and donate the rest to a charity of your choice (as you might budget any other windfall). There’s a certain kind of emotionally giving up on solving the problem perfectly that you might be able to do—acknowledge that investing extreme mental effort in figuring out whether you’re doing it optimally would actually be so costly that it drags you further from optimal in other, more important areas of your work.
Basically, you might be too smart/knowledgeable/whatever for this to work, but maybe you can do it the dumb way? Take a comp package that would be satisfactory without the equity, precommit to what you’ll do with your equity at specific times regardless of the stock’s performance, and then just execute the pre-selected algorithm and taboo further optimization attempts around it.
Do impact markets or impact certificates help with this, even in theory? Say you press a (real or metaphorical) stop button in a situation where lots of other people would have chosen differently, due to financial incentives or other reasons. There would plausibly be people willing to buy the impact of your decision at a high price.
If it’s not immediately obvious that you made a correct / net-positive decision, the initial impact buyers might be investors rather than philanthropists, gambling that they will later be able to resell the purchased impact to philanthropists in the (perhaps distant) future.
I don’t think impact markets are currently mature / liquid enough that you should actually count on them for anything right now, but this consideration probably still has some effect on the expected value calculation which is at least directionally aligned with incentives the way you want.
Would “delta hedging” be useful here? It helps hedge long option exposure by shorting some amount of a stock.
For example, at the money calls generally have a delta of 0.5, so holding 100 at the money calls and shorting 50 shares makes you roughly neutral for small moves in the underlying asset.
Would probably require monthly rebalancing based on how many options you effectively hold and market moves. It also wouldn’t work well if AGI happens at GDM and Google stock goes exponential (“volatility smile” problem).
Generally I’d hope for conscience to be enough, and with a few exoconsciences to help, this seems quite doable to me. If it helps, I can offer to precommit to considering you a massive jerk if you do anything selfish on the basis of GOOG :)
The serious version of this comment is: are there cheap social incentives you can build in? e.g. promise to donate excess gains (perhaps to some not-too-appealing cause), and get a few trusted people to check in with you once in a while? And those people are people you trust to actually call you out in some painful way(s) if you err? Ideally the people would be somewhat diversified over your communities e.g. a handful from: AIS researchers, an old friend or two, family, maybe even current/former colleagues?
Assuming your investment portfolio consists of some broad index of stocks, you might modify it to contain every sector except tech, since your google equity compensation makes you over-allocated in tech anyway. So you would be “short” QQQ versus the counterfactual world where you don’t have equity compensation. If necessary you could get even more short by buying some SQQQ.
In theory, you could be perfectly indifferent to GOOG by owning SQQQ and all the other stocks in QQQ except GOOG in the correct proportion. Though this probably runs against the spirit if not the letter of any employee trading policy.
Owning some GOOG while being short QQQ probably works pretty well in making you indifferent to GOOG’s price in most cases, even over fairly idiosyncratic events like quarterly earnings (though you may have to be more short QQQ in that case). It would fall apart if you were deciding whether to press a button that halved/doubled the value of Google (unless you were unreasonably short QQQ). For that case, precommitting to donate seems like the most reasonable scheme? It feels like any CoI from that should be dominated by whether pressing the button is good for humanity.
Another option: find one or more persons at other companies who also receive stock compensation. Commit to shorting each other’s stock so that as a group you have 0 exposure, and then donating everything to charity. This leaves even charity contributions perfectly hedged.
That seems like it would to the opposite of what’s intended. If major value gets created via AI in tech, holding other companies with AI exposure would make it less important that Google wins at AI.
I think you guys should double-check the mechanisms of the stock grants. IIRC the big tech companies’ compensation package includes “stock” which doesn’t actually behave like stock in the obvious intuitive sense; they do some thing where they give you X dollars worth of stock at the market price at vesting time, so it’s basically equivalent to giving you X dollars except the liquidity is funky.
(Low-confidence, I haven’t actually worked at a big tech company but have a lot of friends who have.)
That’s not correct, or at least not how my Google stock grants work. The price is locked in at grant time, not vest time. In practice what that means is that you get x shares every month, which counts as income when multiplied by the current stock price.
And then you can sell them or whatever, including having a policy that automatically sells them as soon as they vest.
Most big tech companies use RSUs, or Restricted Stock Units. These are not options nor dollar equivalents, they are shares. They are denominated in shares, and the grant is for a number of shares, with a vesting schedule of how many shares become yours on what dates (often a 4-year term, with 25% vesting after 1 year of employment, then ~2% per month or 12.5% every 6 months). Additional grants may be made in future years, with a similar or different vesting schedule.
The stock price when granted is mostly irrelevant (it matters to the company, and sometimes to your loan officer if you’re going for a mortgage or something, but it’s not part of your compensation or taxable income when granted). The stock price when VESTING each block is treated as normal compensation on your taxes. This stock price (at vest, not grant) is the capital gains basis if you hold it for awhile then sell it.
Behind the scenes, the companies calculate the grants by a “total comp target”, and figuring out how many shares to grant based on a dollar amount. But by the time it’s actually written down in an offer or made as a grant, it’s just shares. The only difference between a granted-but-unvested RSU and a normal share is that it’s conditional on continued employment, and there are no voting rights. Once vested, it’s literally a normal share.
Ah, I was probably thinking of the RSU/option distinction and misremembered. Thanks!
This is at least not true for Google, as far as I can tell. Also seems kind of weird since I feel like the primary purpose of stock compensation is to create incentive alignment between employee and company.
It’s always tricky to impute “primary purpose”, but from what I saw, the incentive effect was mentioned often, but nobody really believed it. There’s just no way that any individual to tell if they had impact on that dimension. I’d say the finance and reporting aspects (it’s not part of your salary, and is separate in many corporate reports) are probably more important in keeping it universal.
To avoid being negatively influenced by perverse incentives to make societally risky plays, couldn’t TurnTrout just leave the handling of his finances to someone else and be unaware of whether or not he has Google stock?
Doesn’t matter if he does, as long as he doesn’t think he does; and if he’s uncertain about it, I think psychologically it’ll already greatly reduce caring about Google stock.
Everyone at Google gets unvested Google stock that can’t be sold. It’s going to be very hard to start believing that he doesn’t own any Google stock.
Are you sure it can’t be sold? That doesn’t sound right to me. I was able to sell mine.
I mean, you can sell as soon as it vests, but you can’t sell the unvested stock (they are non-transferrable until vested).
Just set up autosale. They should tell you about it during onboarding—you can automatically sell your stock grants as soon as they’re given to you.
Not sure what this is responding to. I agree that this helps, but of course this means you are still long Google for the whole period that your stock is vesting.