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Skype's buying back of stock options at the exercise price is pretty evil, no doubt. But is it equally uncommon for a company to put in conditions allowing them to buy back vested stock at fair market value?

I ask because I recently read a primer on restricted stock that recommended doing just that, so I assumed it was kind of common. But everyone is in such an uproar of Skype lately, and I don't see anyone mentioning that it'd have been OK if they paid the fair market value for the buybacks instead of the exercise price. So I'm just wonderin'...

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Giving the company a repurchase right at some "fair market" value is more commonly done for restricted stock in companies that don't plan to go public or sell shares any time soon.

Usually you need a way to define "fair market" value. A company may seek to have an annual valuation done by a firm that does these things and use that price for any shares that are repurchased.

It is not so common for VC-funded startups expecting a big exit.

It would certainly be less evil than having a right to repurchase at the exercise price.

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I think the jury is more out than it looked like about the evilness of the situation.

This article points out that the notions of evil come from expectations based on startups, and Skype wasn't a startup. Rather, Skype was a mature company which a private equity firm had purchased from eBay, and now is reselling. The article also asserts that the option plan terms are quite normal for companies owned by private equity firms.

Also, according to the article, a lot of the hoopla is around Kuo-Yee Lee. But Lee admits he quit voluntarily without first checking the options agreement he'd signed; he just assumed the terms would be the same as would be normal for a VC-backed startup. If that's true, it seems to me he shot himself in the foot.

Whether this is all true, or what it means, or whether anybody is really evil, I have no idea. But I think the full story is more complex than it's being made out to be.

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I mostly disagree. It was a misleading contract (I read it). Even if Lee had been fired instead of quitting, he still would have lost all his vested shares. That's just abusing the word "vesting", really. We probably haven't heard the end of that story. – Alain Raynaud Jun 27 '11 at 7:36
Sorry to vote you down, but I feel obliged because this is not an answer to the question :) – Joel Spolsky♦ Jun 28 '11 at 1:46
Disagree also. The option to buy back at exercise price means the option is worthless to the employee. The company still went to the trouble of setting up the scheme; which can only be construed as them trying to mislead the employee into thinking they had something of worth. Using something contractually worthless as an incentive - that's evil. – edralph Sep 26 '11 at 11:11

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