IPO for dummies. Part VIII: On Motivation

    The beginning and table of contents see in the first part .

    Stocks from the founders of the company and the first investors - this is obvious. And how do shares get to employees?

    At the very beginning of a startup’s development, the founder (especially if he does not have a ready-made team) is looking for the first employees / colleagues / partners, who can often become co-founders. Whether it will become or not depends on many factors: whether the founder can provide them with a salary “at the level”, on their commitment (remember the story about chicken and pigwho started a startup in the form of the “Ham and eggs” restaurant and argued which of them will be involved and who will be committed?), from their demands, finally ... It is logical to expect that the first colleagues of the founder, who share some risk with him (and not just go to the office to work out a salary), they become, explicitly or implicitly, the co-founders of the project. And as a compensation for risk, as a reward for commitment, or as a good incentive for red-eyed without a weekend , the founder shares his share with them. Such a distribution of shares can last quite a long time, especially until an IPO has taken place, and nothing more complicated than a notepad and a ballpoint pen is required to register the issued shares.

    By the time the company goes public, it usually already has a strong backbone of the team from among those who have been present from the very beginning. Formerly the first programmer to become the head of the development department; the former first designer becomes an art director, and the former office cat becomes the head of the staff comfort department and acquires two deputies, deputy. purring and deputy. rubbing on the legs .

    Do you remember that shares imply a right to a share of dividends (a mechanism for participation in profits) and a share of votes at a meeting of shareholders (a mechanism for participation in management)? So, starting from some point (it can happen before the IPO), when the company begins to hire not committed colleagues, but just involved, a dilemma arises. On the one hand, the contribution of new employees is not so important as to share company management with them (and it hurt to them); on the other hand, stocks on hand very effectively motivate to work well so that the value of these stocks grows.

    Sometimes this contradiction is resolved by using mechanisms like stocks of different classes, for example, “ preferred ” ( preferred) in parallel with “unprivileged”. The privilege usually lies in the priority allocation of dividends to the owners of these shares (if they will be paid at all) and in the primary repurchase in case of liquidation of the company. Moreover, the "prefs" may not have voting rights. Equally often stocks of different types are created: stocks of one have 1 vote per share, and stocks of the other - 10 votes per share, and at the same time they are very conveniently located with the founders of the company. And so that one of the founders does not suddenly spoil the life of everyone else, shares of the second type automatically turn into shares of the first type at any resale. Although, there is another convenient mechanism ...

    I heard something about the “options”. It's them? What is this all about?

    Yes, options. And the story about options will start again on the stock exchange ...

    Options are such a convenient “derivative” instrument (or, in the slang copying English terminology, “derivative”), which is the right to buy or sell at some point in time at some price some underlying asset . That is, options are important not in themselves, but as a means of working with some other product (therefore, they are considered derivatives).

    Why would anyone use options? Here is an example: the oligarch Misha is going to enter big politics and for this he needs money. In this connection (and at the same time in order to increase his popularity), he announces that he will begin to produce modern competitive ... mobile phones in Russia from scratch. Since the new phone needs a beautiful and sonorous name, Misha (in the corridor of his oligarchic office) conducted a scientific study and deduced that the most common word people say on their mobile phone is "Uhhh ..."

    Therefore, the future brand of mobile phones of the oligarch Misha will be called succinctly and in a youthful way: E-Mobilo. The first generation E-Mobile will be equipped with a lithium-plutonium battery, a mechanism for wireless projection of sound into the ear, recognition of finger gestures, it will cost exactly one hundred dollars apiece, not a cent more and not a cent less, and will begin to be produced somewhere in September next year.

    Everything is good and beautiful. The oligarch Misha is an experienced businessman, and he will certainly cope with the production of a new innovative product. The trouble is that he urgently needs money for political experiments. Say, until March next year.

    Since many people will want to buy the innovative E-Mobil for one hundred dollars, it would be nice to forge the iron without leaving the box office and sell them right now. But who wants to pay a hundred dollars a year and a half before graduation? Yes, and Misha will not arrange a pre-order for ordinary people, otherwise he will drown in papers. It is better to agree on large pre-orders with large retail chains.

    Of course, any trading network will agree to take a batch of commercials from a million or two of these phones, if you sell them immediately. And the scheme "money is now, and the chairs in a year and a half" is of little interest to anyone - no one will agree to freeze a hundred million dollars for such a period. On the other hand, now the oligarch Misha swears that the E-Mobiles will cost one hundred dollars, and how it all turns around ...

    And here options can help our spherical oligarch in a vacuum Misha.

    Imagine that the oligarch Misha met with the conditional director of the distribution network Maxim and promised that phones would cost $ 100 in a year and a half. The incredulous director Maxim said that "I would buy them for $ 100 dollars, but more expensive - FIG knows." The oligarch Misha quickly understands what is at stake, and writes a receipt: “I, Misha, undertake to sell Maxim a million E-Mobilos for $ 100 dollars in September 2012” (if interested, September 2012 is called a date in this case execution , $ 100 dollars - at the price of execution , or, on slang, at the price of strike , and E-Mobilo, respectively - the underlying asset) Director Maxim pulls a little hand for a piece of paper, but the oligarch Misha slaps him on the wrist, puts the paper away and looks expectantly at the director Maxim.

    And here the director Maxim understands that the right to buy goods at a predetermined price at a predetermined period also costs money. Because for the oligarch Misha this is again a risk - what if suddenly by that time the prime cost of E-Mobile will be $ 200? And since this is a risk, then the oligarch Misha, who has written out an option to buy , wants a premium for him . Well, let's say, five percent of the future transaction amount: 0.05 * 1,000,000 * $ 100 = $ 5,000,000.

    5 million is still not 100 million, and Director Maxim can give them for the right to buy E-Mobiles for a hundred bucks in a year and a half. As a result, everyone is happy: Director Maxim received a guarantee that he would buy beautiful devices at a good price, and the oligarch Misha, right now, from the air, received $ 5 million, which he will invest in politics, go to power, receive a billion dollar budget subsidy for the development of mobile innovation ...

    ... will make E-Mobiles and sell them to Director Maxim?

    Yes, these E-Mobiles surrendered to you. Leave me alone, tired. They will sort it out somehow with Maxim, after all, adults also live in Russia.

    It turns out that a person, writing out an option, just so “from the air” gets real money?

    Yeah. For such liberties, some do not like derivatives.

    An option is created literally from nothing, because it is not a product, but only a documented right. In our case, the underlying asset is produced by the option seller, but even this is not necessary if the underlying asset is itself traded on the stock exchange and anyone can buy it at any time. In short, if the underlying asset is a stock. Yes, the written option is instant money to its seller. But now, the option seller needs to keep track of the underlying asset rate and his own account. After all, if it turns out that the underlying assets have risen in price, and all the options seller’s money is not enough to pay the basic assets for all the options written by him, then ... everything is bad, he will urgently have to buy these assets at any price in order to satisfy the buyers of his options, then there are those to whom he sold his obligations.

    It is interesting that you can write out not only an option to buy goods (the so-called call option ), but also an option to sell goods ( put option ). If a call option, as in the case of the oligarch Misha, means that Misha’s seller’s obligation to deliver so many goods at a certain price in the right time, then a put option means that he agrees to buy it.

    We’ll investigate Mishin’s option on E-Mobiles a little more.

    Note that the oligarch Misha sold the director Maxim the right to buy a million E-Mobilok ( redeem option) But not a duty! This Misha is obliged at the request of Director Maxim to sell him E-Mobile for $ 100. If the cost of sales rises by the time official sales start, and E-Mobiles cost $ 200 each, the satisfied director Maxim will come up with this option and exercise it: he will pay $ 100 * 1,000,000 (again, the option is “the right to buy mobile phones”, and not “the right to get mobile phones from the warehouse”, you will need to pay money for the purchase) and get your million mobile phones for a hundred dollars.

    And if at the time of the start of sales of E-Mobiles they will cost $ 50 dollars, then Director Maxim is not a fool to buy them for $ 100, two times more expensive. He will throw the already unnecessary option into the bin and buy E-Mobil like everyone else at the market price.

    We also note that the oligarch Misha sold the director Maxim the right to buy these E-Mobiles in September 2012. And nothing about the earlier dates (because before September E-Mobiles will not be collected yet). Although on the stock exchange, if some liquid stock is the underlying asset, some very profitable option can be sold on its own; Some types of options can be redeemed at any time prior to the exercise date.

    And what does all this have to do with motivating company employees?

    See for yourself: on the one hand, a stock option is not a stock, it is a right to buy a stock. It costs significantly less (because you still have to pay for the share itself!).

    On the other hand, the option itself is already a means of making money on the growth (or fall) of the rates. You don’t even have to bother with the shares themselves: on the exchanges, for the convenience of speculators, they even came up with non-deliverable options . If you bought (for $ 30) an option to buy 100 shares for $ 50 (that is, the right to spend $ 5,000 in the future), and by the time the shares were executed, they went up to $ 80 (and this package already costs $ 8,000), then If the option is deliverable , you will first pay $ 5,000, receive shares, and you can immediately sell them for $ 8,000, earning $ 3,000 in profit (if you do not take into account the thirty paid for the option). And if non-deliverythen you will get the same $ 3,000 profit without fussing with intermediate shares and without having to look for $ 5,000 for a buyback.

    Once again: the option itself is much cheaper than the stock, but with the growth of the stock price the option (namely the call option, for put everything is symmetrical) makes it possible to make a profit.

    And we just wanted to find a mechanism with which we can motivate employees to work well and increase the company's capitalization, and not give them control!

    That is, options, as a means of motivation in the company, allow you not to share management?

    Well, how to say ... Classic options are still “deliverable” and mean that if the buyer pays the strike price on the strike date, he will receive shares.

    At the same time, who needs it? Suppose a company gives an employee an option for a thousand shares (which now cost $ 10), he will work for one year, the shares will rise in price to $ 17, and ... what? If an employee sells his option, he will receive $ 7,000 in profit. And if he wants to want to become a shareholder and will count on further growth of shares - in order to redeem an option and receive shares, he will have to pay $ 10,000 himself (although at the same time he will receive shares that already cost $ 17,000). Arithmetic is simple, then it's up to the employee to choose.

    Options can solve another problem of working with staff: retaining key employees so that they work in one place and do not seek to escape to Google or Facebook. When hiring a large boss, you can immediately promise many options (and for one strike price, share price at the time of his acceptance), but give them in portions: a quarter in two years, another quarter in two more years ... Then, having done a good job, raising the value of the shares and having received the first batch of options with a potential profit of a couple of million dollars, he will not want to leave the post, because he will know: even if in the next two years he does not raise his share price by a cent, his second package will still two more million for dollars. And if he raises ...

    Ordinary employees can be given an option every year, where the strike price corresponds to the price of the shares at the time of issue (then there will be an incentive to work out for another year and raise their share prices a little more). I worked a year - here's an option for you, but it will work in a year. So you work another year, increase its value.

    However, there is another problem with options: if a company is traded on the stock exchange, then each conversion of options into shares should be registered with a broker, possibly - bring it to the attention of the commission. Again, give him shares - and the person will get the right to vote. I wouldn’t want to, huh?

    ... So phantom options appeared (well, or options on phantom stocks ).

    You get them in the same way, you also try to work, increase the stock price, the due date also arrives, only they don’t laugh , they do n’t turn into shares under any circumstances, they just make a profit, as if you had an option. Moreover, since they are not connected with real stocks, profits from them can be taken into account at least every quarter: stocks have grown over a quarter - received a pleasant bonus, not grown up - have not received.

    How amazing. Now all employees will be motivated by the most I do not want, and we will achieve gorgeous results!

    But no. Do you really seriously believe that issuing shares to each employee, including a cashier at a kiosk and a warehouse guard, will lead to a jump in labor productivity?

    The harsh reality is that the work of all cashiers, security guards, technicians and junior accountants, even if they work in their sweat for 17 hours a day (given two breaks for food for half an hour), can be perfectly compensated by the gouging of the only commercial director, who, instead of concluding a contract for the next year with a major customer, he will go on a yellow lamb tour with Tamarka from the previous chapter .

    This does not only mean that option mechanisms should first of all be aimed at the heads of large divisions and other key characters of the company. Although yes, it should be useful.

    This also means that ... well, imagine, technicians and junior accountants, having received their option, worked 17 hours a day, worked hard, and then they paid bonuses for their options, and ... And from the corner comes the commercial director with embarrassed Lamba and suspiciously rounded Tamarka and asks: "No one was looking for me?"it turns out that either because of the ineffective work of the bosses, or because of the sudden onset of the global financial crisis, or maybe just not fate, but stocks this year did not grow, but fell. And not one of the technicians, accountants, and cashiers will receive a bonus on options for their dedication. Believe me, this demotivates much better than a picture with a black frame and two lines of signature. Especially if the failure of the enterprise and the depreciation of the shares, specifically here is not your fault.

    So it turns out that they didn’t come up with anything better than banal prizes for motivation. And if you’re not sorry, you can give shares of the company. Where did we start.


    And all. On it the series of articles on Habré comes to an end. What they remembered - they told, and what they didn’t remember - they didn’t remember. Thank you all for the discussions and kind words, and the authors, honeyman and kaichik , go away dreamily to read the rules for self-publishing books in the Amazon Kindle Store and look at the portfolio of illustrators on freelance.ru, but to agree to take a chance and work for a percentage of sales cheaper.

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