The companies that are changing this are the ones whose stock tanked, and they are worried that employees will leave because of it. Companies whose stock did not tank are retaining their normal compensation programs.
When public companies give stock to their employees, they dilute the stock as much as if they issued stock and sold it. So the cost of that compensation is the same as if it were in cash.
If everyone knows that say, Netflix's stock price is guaranteed to go up 20% a year for the next 5 years, then the market price of that stock would suddenly jump up to the point where it no longer makes excess returns. So the market price of the stock reflects the company's (risk-adjusted) growth potential already. This also applies to non-public companies with any amount of maturity - the marginal investor has a good sense of what the company is worth and does not want to lose out by issuing stock below that.
Put these two together and giving employees stock is economically not very different to giving them money and they choosing to invest it in mutual funds. The main difference is that you make your employees' lives slightly harder - with taxation and with the fact that they need to sell stock to get cash for what they want to buy or invest in.
The reason that stock options are preferred, especially for private companies, are none of them very good. Firstly employees have an inflated perception of what their company will be worth in the future. They assume that it's going to be AirBnB, not WeWork, not Palantir, and not the failed start-up that you've never heard of. Secondly employees also don't correctly discount uncertainty. Would you rather have the cash to buy your dream home/pay off your mortgage, or take a 10% chance of 10 times that amount of money? To most of us the second option is worth considerably less. Thirdly companies sometimes feel better about giving out pieces of paper that they have an unlimited supply of than giving out their own cash, even though it's a wash financially. And lastly there used to be some tax advantages to firms paying with stock options - those were loopholes which have largely been closed.
Making your employees into investors (by giving them stock options) only made economic sense when venture capital money was scarce and expensive. This has not been the case for a long time.
Companies DO prefer to grant RSU instead of cash bonus, because it'll provide liquidity to their stock and make employees engaged with the company's performance. One of Netflix's benefit is they're cash heavy in their compensation, which SWE do prefer.
The dilution is not a problem, since they'll buyback stocks anyway.
Of course, the stock price might have gone down, but also it might not. Companies don't usually time buybacks right to buy stock cheaply.
That's my point. There are times at which people think this is what it's going to do, and after it's done it lots of people believe it to have been clear in hindsight. But the situation where people know in advance for sure that there will be huge excess returns never occurs.
Netflix is a great example. Would you have been keen to take a large amount of income deferred and in stock at the point when streaming was just a weird perk bundled with the DVD mailing subscription?
This is exactly why companies are doing it.
If you're compensated in units of stock and the stock price goes down, you are incentivized to switch to another company to restart the whole process.
It's a negative feedback loop. Company struggles -> stock price declines -> employees leave -> company struggles more -> repeat.
I know employees want the best of both worlds (stock appreciation when it goes up, refreshers when it goes down) but realistically I expect more companies to move toward defined cash payouts now that we're out of the unusual bull market of the past decade.
Many of the companies that are doing this are near-IPO or post-IPO trying to make their finances better. With GAAP, IIUC RSUs are recorded as expenses/count against shareholder equity at the vested price. So if you are a company trying to become GAAP profitable, even if you don’t claw back old appreciated grants, you can prevent the problem going forward/appease shareholders concerned about the impact on GAAP profitability by preventing appreciation. A long-dated RSU is a liability that can become expensive.
Also personally I think getting highly appreciated RSU comp can introduce incentives like employees staying at a company longer than they should or want to (ie because they are burnt out or disengaged) since it may not be possible to find another job that compensates you nearly as much. And, it creates very large pay gaps - an entry level employee who joined 2 years ago may be making more than a staff level employee hired recently.
I think RSUs are amazing for employees and the vesting/expected refresher details are a very important thing I look at when evaluating working somewhere. But many other people probably just look at the Year1 TC which doesn’t include appreciation or refreshers at all. I think enough people are like me that traditional RSUs won’t disappear any time soon, but I expect more companies to try to see what they can get away with in reducing equity comp.
If there was collusion going on, compensation never would have skyrocketed over the past decade.
It's a combination of corruption, collusion, widespread inefficiencies that limits high salaries at the margins (meaning that the marginal company available to each employee is never desperate), very high pre-payroll hidden taxation. Also, importantly I think, a lack of competition between multiple globally dominant tech companies with huge profits per employee and a very obvious pathway to monetizing each additional employee's labor.
So, complex answer. But I'd stake money that collusion, often silently government-sanctioned, is significantly more common than in the US.
An example of this is very common in Norway, where practically all education is state-funded and the number of students for each profession is directly decided by the state. Private-sector interest groups have almost direct control over some of these processes, disguised as a public debate in the newspapers leading up to quota decisions. This leads to an almost planned economy of the availability of professionals.
Other industries should be moving toward employee ownership, not the other way around. Employee ownership creates shared incentives. Shared incentives create alignment. Alignment helps eliminate an antagonistic relationship between employees and management. Instead of them vs. us, it moves it more towards all us. Instead of the fat cats and the lowly workers, everyone gets to reap the benefits or share the losses. Of course the founders and execs get more, I'm not saying it's equal, but it is a far better system than pure cash.
I had options at my last job. They were worthless to me the entire 4.5 years I spent there. It wasn’t until 2 weeks after I was let go the company announced it was being acquired and my lottery tickets became worth something.
4.5 years of opportunity to be engaged at a deeper level as a shared owner of the business, wasted because the business never wanted me to be a part owner in the first place.
Definitely looking for more companies that operate the way you would expect here!
This is precisely what unions are for. It's possible to develop a professional organization that then informs expected standards of employment, such as shares in ownership of the company. The Actors Guild for example will specify and fight for the intellectual property of actors part of the guild, including in contracts where members of the guild are hired.
I got a payday of $27k before taxes, $18k after taxes. In my opinion, I should've negotiated $10k additional salary if not more when I got the job; it would have been a far better payout without any 4 year requirement of loyalty (I was not appropriately rewarded for said loyalty).
Due to tax implications, your options might be worth significantly less - if anything at all - because you often have to pay taxes before you are able to sell them. If your company is not yet publicly traded, there is a significant chance it'll be heavily diluted by the time you are able to actually sell it. Even worse, you might never be able to sell it. You might not be able to leave the job when you want to, because you are essentially tied to the stock option vesting period. It also significantly increases your personal risk: what happens when the company performs poorly? You might lose both your job and your wealth at the same time.
The way I see it, the antagonistic relationship exists because management is judged primarily by the shareholder value they create. To an employee, the company is their daily life. To a shareholder, the company exists solely as a means to create money. I would not want to work in a company where everyone is driven solely by shareholder value.
Personally, I'd strongly prefer it if the employer had a workers council, and just gave out bonuses when it was doing good. You still share in the benefits, but you have far less personal risk.
That is something that people love to ignore - vesting periods are created specifically to keep you from leaving for a better job. While keeping the risk for the company fairly low.
Low mobility has been proven time, and time again, to repress income growth in people. (more often linked to owning a home, and not being able to move for a job)
You're an employee, not a co-owner. You're paid to do a job and, more often than not, your input is completely irrelevant to the leadership.
And as someone who is paid to do a job, not to be a practical co-owner, you should be paid in cash.
I currently work at a 50 people startup... and guess what? I'm no co-owner, no matter how much options I get. Last reorganization was done without my input... and no one will ask in the future. If you think you're anything more than a service provider - you're either in the executive management or deluded.
I don’t think this scales to something big. Eg Amazon gives stock. Amazon even gave stock to warehouse workers. I don’t think many people, from warehouse workers to senior AWS SDEs feel a true sense of shared alignment, and I bet many share a sense of antagony with management.
I work at a different megacorp. I don’t feel meaningfully like an owner. My 500k in RSUs is meaningless compared to the $2T market cap. Nancy Pelosi probably owners more shares than me.
Could it have gone the other way? Of course, and it's often likely that at startups stock could be worth zero. But at large companies, even with the recent dips in stock prices, employees who joined 2+ years ago are better off with stock grants than they would have been with equivalent fixed-size cash bonuses -- so much so, that would often have to take a pay cut to work anywhere else.
Right and during that vesting period if you had been paid cash you could have invested that money in a wide range of assets that are both more liquid and are not perfectly correlated with your source of income.
Now if we're talking a bonus that would be paid at the end of the vest period such that you can't invest that money until you would have vested anyway then stocks is theoretically going to have increased by the risk free rate, so it's expected value will be higher than the bonus (however it's much higher variance).
Everyone has weird thoughts in their heads about RSUs people the last decade has been insane, and no one remember the last tech crash. The next one will be bigger and when you realize you are getting laid off at the same time that your RSU drop to near zero, it will feel like the variance might not be worth it.
As I wrote elsewhere, who knows? But in the dot-bomb crash, large solvent companies saw their stock tank by 95%. And, by the way, to first approximation no one was hiring so you're not just going to hop to another company.
Hopefully everything will be reasonably fine but I think a lot of people have an unrealistic expectation of worst case scenarios.
With RSU's, you get $400k1.05^4 (4 years of compounded growth)
With cash, assuming you immediately invest the money, you get $100k1.05^4 + $100k1.05^3 + $100k1.05^2 + $100k *1.05
Running those numbers, the RSU's are worth $486,202 at the end and the cash is worth $452563. RSU's appreciated by $86k over the duration, cash appreciated $52k over the duration.
It's the time value of money. Getting it earlier makes it worth more.
Of course most people won't do it because is very risky. Yet getting RSUs has similar risk (or larger as you can lose more than the option premium).
There might be US tax implications that I'm not familiar with of course.
Also I'm not familiar with the US case, but I understand those limitations are contractual not regulatory and thus have no bearing in what's would be optimal for the employee.
If, along those 4 years, your company tanks 25% (Shopify tanked over 50%), you’ll be able to abandon the investment (and get 100k a year of something else), or double down and get more shares (aka dollar cost averaging).
Therefore you get cash earlier, than any stock.
Your incentives never align with any of the publicly traded major tech companies.
Small startups - yes, you have more leeway. Google, Facebook, Apple - yeah, no... outside of top management, your fixes to their mapping application have sweet all to do with stock value.
If tech workers were united in fleeing giants to found or work at nimble upstarts, we would reap nearly all of the rewards.
I’m all for more employee ownership and engagement from being a shareholder in addition to an employee, but I’d love to see startups equally interested in that.
I joined GrubHub 3 months before the stock tanked. I haven't even vested the first tranche, before my RSUs tanked over 2x.
Thank god I learned enough in my life, to demand cash sign on bonus... that ended up being larger than the RSU grant.
Remember the golden rule - $1k today, is better than possible $10k in 4 years. (feel free to scale it up as you wish)
Over the last decade and a half tech employees have enjoyed massive returns due to stock appreciation during their vesting term, and now employers want to eliminate that. Of course the flip side is that when the stock goes down - like right now - then employees benefit.
Ultimately they’re all going to cut out stocks entirely and just pay cash salary and bonus, like every other industry.