Pinterest Makes Revolutionary Change, Relieves Employees Of Tax Liability
The latest decision from Pinterest, which will allow its employees to receive equity on terms they find more favorable, can prove to be highly influential should other private companies follow the practice.
Should employees who have served the company for more than two years decide to move on, or get terminated, they can secure their stock options for a period of seven more years – starting from the date of their departure – without exercising them.
In effect, Pinterest has successfully eliminated tax liability many successful start-up employees fear.
Typically, start-up employees prefer taking stock options as opposed to higher salaries. This is because if the company goes on to become mightily successful, the value of the stock options becomes greater than that of the lost salaries, and employees will be able to reap more benefits.
Employees are ordinarily given a period of 90 days to exercise their stock options; thus, they have to buy the options at a strike price, the price at the time the options were granted. If an employee doesn’t have enough money to buy the shares or pay taxes during that period, they won’t be granted the shares irrespective of how long they’ve worked for the company.
Pinterest, however, is giving employees an extended time period: seven years.
Company co-founder Evan Sharp said, “The principle we’re operating under is one of fairness.
“If you’ve made an important contribution to Pinterest, you should be able to keep that value. And that shouldn’t just be for people with enough cash to satisfy their tax liability.”
According to Fortune, the company recently raised $367 million in a new round of funding, escalating the website’s valuation to $11 billion.
The recent funding increases the company’s valuation and places it higher in the ranks of tech industry “unicorns,” a term used for start-ups valued more than $1 billion.
Pinterest also intends to raise another $210 million in the current funding round.
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