IPO for dummies. Part VIII: About Motivation

Start and table of contents, see the first part .

Shares with the founders of the company and the first investors - this is obvious. And how do stocks get to employees?

At the very beginning of the startup 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. Will or not - depends on many factors: whether the founder will be able to provide them a salary “on the level”, on their commitment (remember the bike about the chicken and the pig , who started a startup in the form of a restaurant “Ham and eggs” and argued who among them would be involved, and who is committed?), from their demands, finally ... It is logical to expect that the first founding colleagues who share with him to some extent the risk (and not just go to the office to work out a salary) become, co-founders, explicitly or implicitly project. And as compensation for risk, as a reward for commitment, or as a good incentive to red eye every weekend , the founder shares his share with them. Such a distribution of shares can last long enough, especially until the IPO has happened, and for the registration of distributed shares nothing is more complicated than a notebook and a ballpoint pen.
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By the time a company enters the stock exchange, there is, as a rule, a strong backbone of the team from among those who are present from the very beginning. Former once the first programmer becomes head of development; the former first designer becomes the art director, and the former office cat becomes the head of the staff comfort department and acquires two deputies, deputy. by purring and deputy. by rubbing their feet .

Do you remember that shares imply the right to a share of dividends (mechanism for participation in profits) and a share of votes at a meeting of shareholders (mechanism for participation in management)? So, starting from a certain moment (it can happen even before an IPO), when a company does not commit to work not committed by colleagues, but simply involved, a dilemma arises. On the one hand, the contribution of new employees is no longer so important as to share with them the management of the company (and it hurt too, it surrendered to them); on the other hand, stocks in their hands are very effectively motivated to work well so that the value of these stocks grows.

Sometimes this contradiction is solved using mechanisms like stocks of a different class, for example, “ preferred ” ( preferred ) in parallel with “non-privileged”. Privilege usually consists in the primary allocation of dividends to the holders of these shares (if they will be paid at all) and in the first priority buyout in the event of liquidation of the company. In this case, the "prefs" may not have the right to vote. Not less often, shares of different types are created: the shares of one have 1 vote per share, while the shares of another have 10 votes per share and at the same time are very conveniently located with the founders of the company. And so that one of the founders does not suddenly ruin the rest of their lives, shares of the second type automatically turn into shares of the first type for any resale. Although, there is one more convenient mechanism ...

I heard something about options. It's them? What is it all about?

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

Options are such a convenient "derivative" tool (or, on the English slang, "derivative"), which is the right to buy or sell a basic asset at some price. That is, options are not important in themselves, but as a means of working with some other commodity (therefore, they are considered derivatives).

Why would anyone use options? Here is an example: oligarch Misha is going to go into big politics and for that he needs money. In this connection (and at the same time, with the aim of increasing its popularity), he announces that he will start producing modern competitive ... mobile phones in Russia from scratch. Since the new phone requires a beautiful and sonorous name, Misha (in the corridor of his oligarchic office) conducted a scientific study and deduced that the most frequent word that people say in a mobile phone is “Eeee ...”

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

Everything is good and beautiful. 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, by March next year.

Since for a hundred dollars an innovative E-Mobilo will want to buy many, it would be nice to strike iron without leaving the cash register and sell them right now. But who wants to pay a hundred dollars and a half years before the release? Yes, and Misha will not arrange pre-order for ordinary people, and then sink in the papers. It is better to negotiate large pre-orders with large retail chains.

Obviously, any retail chain will agree to take a batch of commercials from a million other such phones, if you sell them immediately. And the scheme “money is now, and the chairs in one and a half years” is of little interest to anyone - no one will agree to freeze one hundred million dollars for such a period. On the other hand, it is now the oligarch Misha swears that E-Mobila will cost a hundred dollars, and how it all turns out ...

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

Imagine that the oligarch Misha met with the conditional director of the trading network Maxim and promised that in one and a half years phones will cost $ 100. The incredulous director Maxim said that “for $ 100 dollars I would buy them, but more expensive - FIG knows.” Oligarch Misha quickly understands what is being said and writes a receipt: “I, Misha, undertake to sell Maxim a million E-Mobilo for $ 100 dollars in September 2012” (if it is interesting, September 2012 in this case is called the date executions , $ 100 dollars - the exercise price , or, in slang, the strike price , and E-Mobilo, respectively, the underlying asset ). Director Maxim is pretty pulling the little hand for a piece of paper, but oligarch Misha slaps him on the wrist, takes the piece of paper away and looks expectantly at Director Maxim.

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

5 million is still not 100 million, and director Maxim can give them away 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 will buy beautiful devices at a good price, and oligarch Misha right now, out of thin air, received $ 5 million, which he will invest in politics, come to power, receive a budget subsidy of a billion dollars for mobile development innovation ...

... make E-Mobiles and sell them to director Maxim?

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

It turns out, the person, writing out an option, just like that “out of thin air” gets quite real money?

Yeah. It is for such liberties that some people do not like derivatives.

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

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

Let's investigate the Mishin option on E-Mobile a little more.

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

And if at the moment of the start of sales of E-Mobile, they will cost $ 50 dollars, then director Maxim is not at all stupid to buy them at $ 100, twice as expensive. He will throw an unnecessary option into the trash bin and buy E-Mobili like everyone else, at the market price.

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

And what does all this have to do with the motivation of the company's employees?

See for yourself: on the one hand, an option per share is not a share, it is the right to purchase a stock. It costs much cheaper (because you still have to pay for the share itself!).

On the other hand, an option in itself is already a means of making money from rising (or falling) rates. You can not even bother with the shares themselves: on the exchanges for the convenience of speculators, they even invented non-deliverable options . If you bought (for $ 30) an option to purchase 100 shares at $ 50 (that is, the right to spend $ 5,000 in the future), and by the maturity date the shares went up to $ 80 (and this package costs $ 8,000), then If you have a delivery option, you will first pay $ 5,000, receive shares, and you can sell them immediately for $ 8,000, receiving $ 3,000 in profits (if you do not take into account the thirty paid for the option). And if non-deliverable , then you will receive the same $ 3,000 profit without fussing with intermediate shares and without the need to look for $ 5,000 for redemption.

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

And we just wanted to find a mechanism by which it is possible to motivate employees to work well and increase the capitalization of the company, and not to give them control!

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

Well, how to say ... Classic options are still “deliverable” and imply that if the buyer pays the strike price on the exercise 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 dollars each), he will work for one year, the shares will rise in price to 17 dollars, and ... what? If an employee sells his option, he will receive $ 7,000 profit. And if he wants to become a shareholder and calculates the further growth of the shares, he will have to pay $ 10,000 to pay off the option and get the shares (although he will receive shares that already cost $ 17,000). Arithmetic is simple, the next is the choice of the employee himself.

Options can solve one more problem of working with staff: retaining key employees so that they work in one place and do not try to escape to Google or Facebook . When hiring a big boss, you can immediately promise many options (and at one strike price, the price of shares at the time of his admission), but issue them in portions: a quarter after two years, another quarter after two years ... Then, having worked well, lifting 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 position because he will know that even if he does not raise the share price by a cent in the next two years, the second package will still wait for him two million more on dollars. And if you raise ...

Every year, ordinary employees can be given an option where the strike price corresponds to the price of the shares at the time of issuance (then there will be an incentive to work for another year and raise the price of the shares a little more). I worked for a year - here's an option for you, but it will work even in a year. So you work for another year, you 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 must be registered with a broker, it is possible to bring it to the attention of the commission. Again, if you give him a share, the person will get the right to vote. I would not want to, yes?

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

You also get them, you also try, you work, you raise the stock price, the performance date also comes, only they don’t cheer , they do n’t turn into stocks under any circumstances, they just make a profit, as if you had exercised an option. Moreover, since they are not connected with real shares, the profit from them can be taken into account at least every quarter: they grew up during the quarter of the action - received a pleasant bonus, did not grow - did not receive.

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

But-but. Are you really seriously believe that the issuance of shares to each employee, including the cashier at the kiosk and the warehouse guard, will lead to a jump in productivity?

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

This not only means that option mechanisms should first of all be directed to the heads of large divisions and other key characters of the company. Although yes, it should be useful.

It also means that ... just imagine, the technicians and junior accountants, having received their optionals, worked 17 hours a day, worked hard, and then the bonuses for their options were paid, and ... And the commercial director with an embarrassed Lamba arrived from a spree and suspiciously rounded Tamarka and asks: “No one was looking for me?” it turns out that either because of the ineffective work of the authorities, or because of the sudden global financial crisis, or maybe just not fate, but this year’s actions grew up and fell. And none of the technicians, accountants and cashiers for their dedication will not receive a bonus on options. Believe me, this demotivates much better than a picture with a black border and two lines of captions. Especially if the failure of the enterprise and the decline in the stock price specifically your fault is not even close.

So it turns out that nothing better than banal awards for motivations and did not come up. And if you do not mind, you can give shares of the company. Where we started.

BUT…

And all. On it a series of articles on Habré comes to the end. They remembered what they said, but what they did not remember, they did not remember. Thank you all for the discussions and kind words, and the authors, honeyman and kaichik , dreamily remove the rules of self-publishing books in the Amazon Kindle Store and look at the portfolio of illustrators on freelance.ru, so that they agree to take a chance and work for a percentage of sales cheaper.