The Real Risk of Working at a Startup

Fred WhittleseyCompensation Expert Witness Blog, Conscious Compensation: The Impact Compensation Blog, Effective Equity: The Equity Compensation Blog


When we think of working at a startup, we might imagine a lower base salary, no annual bonus, sparse benefits, and lots of equity – usually stock options.  Most realize that equity is a highly risky form of compensation and few startups ever make it to the IPO, another small number get acquired (at a much lower multiple than an IPO), and the rest fail.  But at least along the way you earn a salary, some basic benefits, maybe some cool perks, and an interesting experience.

Most would not imagine, however, that there is more risk than just the questionable value of stock options.  Workers at Sungevity, like those at Solyndra a few years ago, learned that even their base salary or wage may not be safe.  Have you ever had your paycheck bounce?

Most employees probably never heard of WARN, the Worker Adjustment and Retraining Notification Act, which provides workers with 60 days notice of a layoff or compensation in lieu of notice. Solyndra employees had to file a lawsuit to get their compensation. Sungevity workers are having to pursue the same remedy.

Sungevity had attracted hundreds of millions of investment from some big investors – Lowe’s, General Electric, and venture capital funds.  Apparently all that money was spent, and workers are bearing the brunt of management decisions. And their stock options (if any) are worthless, too.