Compensation and Soylent Green Stock Options
SOYLENT GREEN IS PEOPLE!!! Yep, today’s post is about cannibalism. Not “eating human flesh” cannibalism, more of the “eating young people's futures” cannibalism. There are now schools and investors willing to pay for college in exchange for a percentage of your future earnings.
If you don’t think too hard, it seems like a great way for the underfunded to get the chance to have a better future. If you think about it harder, it’s kind of a terrifying idea. On the surface a newly ordained adult in our society exchanges 15% of their future earnings, to cover the 6-figure cost of their college education. You earn back your future by paying back the debt created. Of course, the amount you pay back is more than what you got, but the opportunity it provides can seemingly pay for itself in no time.
Much like the deal provided to an entrepreneurial founder, there is inherent risk in the situation. Unlike the startup founder, it is unlikely that the college degree, by itself, can be leveraged into hundreds of millions of dollars or more. The student is unlikely to find a group of motivated and talented professionals to help them get the best grades and be best positioned for a great post-school job.
And what if…
What if you fail? Does someone have equity in YOU? Perhaps not today, but the risk of unintended consequences regularly rears its ugly head in the world of incentive compensation. Will the “funders” require a clawback if you get bad grades, or get injured or simply decide that your idealistic career choice made as an eighteen-year-old turns out to be something you hate or are lacking in talent?
What if this idea becomes popular? Will parents be able to trade some of their child’s future earnings to get them into a great private elementary school (or pay for a cool vacation)? Will people buy cars and houses in the same fashion? Will you dilute your ownership in yourself to the point where you are not only a minority owner, but you no longer serve on your own Board of Directors?
What if you really screw up? Perhaps you are sent to jail because of a careless, avoidable accident. Who gets paid and when? Who gets to make your future life decisions?
This all seems extreme to most of you, but I assure you that there are many brilliant business people whose ideas and futures have trickled away similarly. When a business fails, it is liquidated or simple stops operating. Even that can be devastating to the individual who did not have their equity plans properly designed. But if a human is unable to fulfill their potential, they are still around. The funder can theoretically “go back to the well” to get their investment back until the person is destitute or is essentially owned in full.
While these scenarios may seem like the makings of a desolate science fiction novel, they are not far from the reality faced by some startups. The difference is investors in startups know that they are taking a risk and may never see a return. With Soylent Green Stock Options the risk is fairly low as long as the person is alive and the investor has great attorneys (and they all have great attorneys.) Would you recommend this as a solution?
Dan Walter is a CECP and CEP and works as Managing Consultant for FutureSense. He is passionately committed to aligning pay with company strategy and culture. Dan is also a leading expert on equity compensation issues and has written several industry resources including the one-of-a-kind Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.
Posted by DanFutureSense on 05/14/2019 at 06:47 AM in Executive Compensation, Incentives/Bonuses, Stock/Equity Compensation, Total Rewards | Permalink | Comments (2)