So it's not an equity grant at all then. It's an employee stock purchase plan. You choose how much of your compensation buys stock and you get a small discount on the purchase price (called "bonus" in the article). That is exactly an ESPP.
An ESPP is directing earned cash into stock. You buy the stock at time of payment.
This is directing equity into RSUs or ISOs at the open of the window. You will be subject to price fluctuations over the window, which you wouldn't be with an ESPP.
Yes, this would be for one quarter. I also agree it is quite similar to an ESPP, especially for the majority of people. I doubt many would be willing to allocate 80-90% of their total comp to ISOs.
Qualcomm grants RSUs based on the value at the time of the grant, not number of shares. If they tell you you're getting $50k, that's what you get. Of course it moves around with the market over the course of the beating schedule. It also creates a perverse incentive since its better for the stock to be low when receiving a grant.
This is how my ESPP works. I couldn't imagine that program replacing my RSUs. What a ripoff to the people attracted by the promise of RSUs.
As someone who came into tech with $0 in savings, RSUs are what gave me financial freedom. When a business dilutes that they not only dilute the marginal amount of business that employees get back in return for their contributions but it also takes away another key financial utility for people to rise economically.
If your company had offered you the cash value of RSUs instead of the RSUs, would you not have ended up in the same position financially? For example, if your base pay was 200k, and you had a grant of RSUs worth 200k, how is that better financially than getting all 400k in cash?
If you have RSUs worth 200k per year, standard practice is that you get one grant of 800k at the start of employment, vesting over four years. If you got 200k cash instead, you couldn't buy 800k stock in the first year. That's an extra 600k of upside exposure.
If that 600k of extra stock appreciates a lot in the first few years, you are far better off with the RSU grant. If it doesn't, you can quit before it vests and try again at a different company, you're not locked in.
RSUs have a $0 cost basis - these aren't options we're talking about. Yes it's technically a $600K downside risk but if you recognize anywhere close to that your company went bankrupt and that won't factor into the conversation since you won't have a job anymore.
This kind of up-front grant is a wonderful asymmetric bet. You get $600K skin in the game on day 1. If the stock goes up 20% you get a 20% gain on the whole amount before you even own it. If it goes down materially, you're welcome to quit - but more often what happens is actually the company issues a refresh grant to make up for it - since they don't want you to quit. If it goes back up you now have a ton more stock on the way back up.
You get to earn appreciation on the whole amount before you earn it so up to 4 years early. You have nothing of your own at risk except your time. Things go well, you can do amazingly well. If things go bad, you lost a year or two and you can wander down the street for another lotto ticket.
No, the downside exposure is limited because you can quit your job. You don't have to actually eat a stock drop loss by working for 4 years and vesting a loser, you can change to another job and reset your basis.
True, but there's an opportunity cost to having worked at Company X on the assumption that your RSUs would appreciate in value, when in fact they decreased and you could have worked at Company Y instead.
Anecdotally, I've never had RSUs depreciate to a point at which I metaphorically lose money for my efforts. This might happen at startups more often and megacorps less often.
We were in an unprecedented bull run for tech stocks for a decade plus. No guarantee that continues. Markets are anti-inductive and past performance is no guarantee of future results.
You were being paid less because you received those RSUs. The downside is set at the difference between what you got paid and what you would have been paid had there not been RSUs in the equation.
I think the reality is though that is is extremely difficult to find a job that would pay a comparable total comp in all cash. You choice isn't 200k cash, 200k rsu vs 400k cash since the 400k cash offer doesn't really exist. What is more, at least in Europe and Australia and ignoring tiny seed stage startups, the places that give out substantial equity actually pay MORE in cash than more traditional, regional companies.
While I would avoid trying to time the market, anyone starting now has a much lower "cost basis" (they're not spending money, it's not a cost) and better chance at their RSUs appreciating while they vest. Using the last 12 months as a guide for the next 4 years isn't a reasonable way to analyze this.
I'm not sure I follow that. If you're getting those shares instead of a higher salary, there's no effective difference between that and a cost you paid out of pocket (except for certain tax implications).
Shopify's plan is an oddity in the industry, normally one doesn't directly trade RSUs and base comp. Netflix has allowed for this (probably still does, but I haven't negotiated against a Netflix offer recently), but I don't know of any other significant examples.
That said, legally, even in the specific case of the Shopify plan, you aren't taking cash and spending it on Shopify stock. If you were, your tax situation would be more complicated.
> normally one doesn't directly trade RSUs and base comp
You do, it just isn't spelled out. If you're getting comp in one way (RSUs), then you're not getting it in other ways (salary). The same is true of other benefits, like free food, 401k contributions, etc. It generally isn't a 1-to-1 thing, but it _is_ a tradeoff.
Which leaves the employee with less upside going forward, at which point they can switch companies and "start over" with an RSU grant that is at par. In this regard the initial grant has a bit of flavor of an option. You have the option to stay on the vesting schedule or change companies and start a new vesting schedule, but any losses on unvested amounts don't hit you if you switch.
incentivizing productive employees (the ones with the most alternatives) to quit if the stock price (or the stock market generally) goes down is a hell of a side-effect when you put it like that.
I guess that's the monkey-paw side of "incentivizing the employees to make the company perform by giving them a stake in the upside"...
That’s why a lot of companies will issue special grants to their highest performing/most critical employees if the shares drop a lot. That makes for a good “double dipping” if the shares recover.
Real Networks did that for us, after the dot-com crash. The stock promptly dropped some more, and never recovered. I've been deeply skeptical of stock-based compensation ever since...
Depends on your level and your geographical location but a staff engineer could vest anywhere from 300K-800K per year depending - more if you see some meaningful stock appreciation over time. Staff engineers are like top ~10% of a company's engineers. That number can go up significantly if you're a principal engineer.
200K seems pretty average for a senior engineer role (i.e. a 'terminal' role, not an up-or-out junior role) in the Bay Area on top of a 150-200K base.
Not quite. In the short term, perhaps, but I think the original comment was alluding to the fact that RSUs as an "investment" vehicle can have long term returns far greater than others.
Put another way, 200k in RSUs at an early stage company might be worth 100x or even more at IPO or acquisition years down the line. If you were to take that same 200k in cash and invest it in other ways you might be able to have the same return, but it's unlikely.
There are a lot of factors that affect this, but ultimately the potential return is something that start up employees can find attractive. These potential returns are also the underpinning financial motivator for Venture Capital.
> Put another way, 200k in RSUs at an early stage company might be worth 100x or even more at IPO or acquisition years down the line. If you were to take that same 200k in cash and invest it in other ways you might be able to have the same return, but it's unlikely.
Identifying a company that is going to return 10000% is difficult. However, identifying a company that is going to return 10000% _and_ getting a job there is also difficult.
> Identifying a company that is going to return 10000% is difficult. However, identifying a company that is going to return 10000% _and_ getting a job there is also difficult.
If you can do the first part, you're already working on sand hill road.
If you joined in 2019 then you'd make around $200k this year. Last year you'd have made around $350k. Still better or equal to getting cash every year.
So, the lottery is better than a savings account, because if you win the upside is much higher? Whether or not stocks options/rsus/whatever are worth more than an increase in salary is very dependent on the timing, the company, and variety of other things. You can just as easily point out losing situations as you can winning; in fact, I'd wager the losing is more common.
It's a fairly controlled bet with relatively little downside (companies are likely to cover a large drop in RSU value) and a lot of upside. Since the vesting window is 4 years, you can sell as soon as things best, you still get a salary and you can switch jobs at any time the risk isn't that high. And since you can make up a decade of regular income in a few years the logical approach is to roll dice when younger if you can.
Couldn’t you use the 200k cash alternative to buy AAPL, theoretically, and end up in the same boat? And in that case you can also buy a mix of other stocks to diversify instead of having it all in one company. I’d take cash any day personally.
No, because in order to achieve the same outcome you'd need to have $800K to buy AAPL in 2019. Taking your $200K in cash each year will result in buying $200K of AAPL in 2020, $200K of AAPL in 2021, etc... which bypasses a great deal of the gains.
Part of the power of RSU packages is that is equivalent to a very large stock purchase that is a multiple of your earning power that you earn out of over time.
So yes, if you have a lot of liquid capital, taking a $200K/yr stock package from Apple in 2019 is "equivalent" to putting $800K into AAPL all at once. The trick is that more people can do the former than the latter.
That assumes you just keep the cash. I think what they meant was:
First year make 400k, buy 200k worth of something that is not just one egg basket. But because it's salary you do that every ~2 weeks so you end up with hopefully more than 200k by end of year already too. Continue example over the other 3 years.
Yes the upside is smaller as I would assume the broader market part would return less in the upside case. The point is that your downside is 'better'. Instead of your tech stock tanking over proportionally you'd be down less or be even or could decide to stay in cash mid year as markets tank and interest rises or buy something else like a house. It basically allows for better 'control' and a less bad worst case at the cost of being able to 'win the lottery'.
Of course you are right that just buying one stock, even if not your own company from the cash is actually worse overall. If you were gonna do that, just get the RSUs.
They asked if you could "end up in the same boat" by getting paid the same amount in cash as RSUs. You can't. There's a common misconception that RSUs are only more restrictive than cash, that if you got paid in cash you could just use the cash to buy the stock and end up in the same position. This is just not true.
RSUs have downsides. That was never in question in this thread (as much as people keep affirming it).
RSUs also have financial upside over the equivalent amount of cash. That's the thing people keep trying to explain but also seems to get brushed off.
$100k cash and $200k RSUs per year in a stock that increases by 10% each year: after 4 years I have $400k cash and $1.171mm in stock.
$100k cash and $200k cash given to me at the beginning of the year to buy the same stock for 4 years: $400k cash and $1.021mm in stock.
They're just not the same. RSUs have leverage. They have upside and downside.
Fair enough on the exact same boat. Very unlikely given the companies that usually have RSUs in that value range. You would have to get RSUs in a company that is less likely to go up than what you could invest in with the cash.
For a less sky rockety company that still offers RSUs I would take my chances with the cash and actually ending up in a better boat.
You can also invest the RSUs that vest or keep them. In my example I assumed you cashed them out instantly and did not invest the resulting cash. So while the cash looks better with investments so do the RSUs.
That also means the risk of RSUs is also not as high as you paint it out since you don't keep them for 4 years. After the 1 year cliff you can sell them as they vest. So you're only risking future money rather than money you've already gotten. Unless the stock goes below the original stock price then you're still ahead. If it does then you either get a top up or find a new job.
I see it this way: with RSUs you are betting on one egg. Your company. There are things about RSUs that make them more attractive than getting cash and betting on another single egg. If I can get cash instead I will. I don't count the RSUs as a decider in that sense. Given my risk tolerance I'll take extra cash if I can and invest it into multiple eggs instead. Over the past 10 years that probably would have made me loose out on money. We will see how it goes in the next few. When all tech stocks are tanking I bet it's going to be hard to switch to another company where things would be better. Having bought stocks that have paid dividends through many years of recessions with the cash I got seems better to me. Of course you could have sold those sweet RSUs and bought more of those same dividend paying stocks than I can. Power to you if you did. Somehow I doubt most people that choose the RSUs have done that and instead only cashed out to buy a house or a Tesla etc. Not saying that's you or everyone. I drive a 11 year old car I bought used. And would even if I had taken RSUs ;)
I joined a startup last year and was given a $200K salary and $50K in stock options. If we're successful and reach a valuation of $5B, my options will be worth $1M.
And that's not even accounting for evergreen option grants and bonuses.
“if” is the key word there. Most companies don’t make it to IPO, and even if they do it would be a long wait. In the mean time your shares are illiquid, the paper they are written on is worth more. I’d prefer to take the cash alternative and put it into safe investments.
Oh yeah, it's a lotto ticket for sure. Even starting the job, I told my wife I was playing the startup lottery. She's fine with it since we have over 6 months of expenses in savings, and work in security, I won't have a hard time finding a new job if we went belly up.
The company is very transparent with the numbers, though. Every month we have an all-hands meeting and the CEO goes over numbers, including current ARR, burn rate, balance, and runway.
We received a $75M Series C in May, and in our last fiscal year we 4X'd our ARR. We're doing pretty well.
The main thing to remember is that typically early stage options for an engineer will make you a bundle iff everyone else gets paid (often first).
When things go badly, or even just not well, it doesn't matter what your plan was or how transparent everything is - the founders/board may be staring down a choice between folding the company up or decimating the equity of everyone currently holding it. It's a pretty easy decision usually. The good ones will take it on the nose with everyone else, the others ... well they aren't taking the same hit.
You’d be granted $200k in RSUs over 4 years, but actually be getting, 20,000 RSUs if the stock price was $10. Fast forward a few years and the stock is trading at $100. You’re now earning 10x more.
Or you could get that cash and buy the same stock, without restrictions that come with RSUs.
Oh... also... "Tax Man 22" - RSU grants are taxed at the time they vest. So if your 20000 RSUs vest at $100, then you pay regular income tax on $100... not lower capital gains tax on the $90 per RSU.
The number of people in this thread who don't understand RSU grants at all is kind of shocking.
You're granted $800k of RSUs up front at the current stock price, 25% percent vests every year. That is VERY different than buying 200k of stock every year because the 800k is all granted at the INITIAL price, whereas buying 200k every year buys stock at the CURRENT price.
If you could take 200k cash every year and then time travel back to the start of the period with it and buy the stock, THAT would be equivalent to RSUs.
You are right that it is different, but it's not unambiguously better.
In the rather special case that stock price is monotonically increasing, there is an obvious benefit to locking in the earliest price you can.
On the other hand, if you have more cash every paycheck, you can trickle it into other potentially high growth companies and spread your risk. And you don't lose anything by leaving on a date you choose. And, as shopify has recently demonstrated, being locked into last years price could mean you lose a lot.
We've just left an extraordinary period of growth for tech stocks, but it won't always be that way.
What are you replying to? That you cannot buy the stock? Because that is demonstrably false.
> If you could take 200k cash every year and then time travel back to the start of the period with it and buy the stock, THAT would be equivalent to RSUs.
Except that's not what the OP wrote.
> The number of people in this thread who don't understand RSU grants at all is kind of shocking.
Let me rephrase you - The number of people, yourself included, who are completely ignoring what the OP wrote to just rant about RSUs and seem more intelligent is... not shocking at all.
You get a small free option if job change costs are zero. Unvested equity can appreciate. The option is only really free if you can change jobs effortlessly if it depreciates, but that's close enough to true if you're motivated enough.
Note that this is still catastrophic in terms of diversification. And you can compare job change costs directly to how much paying for this option would cost.
It's a matter of the difference between when they are granted versus when you receive them. If I tell you I'm going to give you $100k cash in 4 years, that's wildly different from if I tell you that in 4 years I'm going to give you stock purchased at today's price for $100k. Yes, the upside relies on the stock going up, but that upside can change things quite a bit.
It can be preferable because RSU's typically have a basis that reflects the price of the stock at the time they're granted. So if you're granted $100k in RSU's per year at year 0, and the price of the stock doubles by year 1, you'll actually receive $200k worth of stock.
And when it halves (like it happened to most tech stock over the last year) you get $50K by year 1. If that doubles you finally get your 100K again by year 2.
I think the point is that RSUs are preferable if the stock goes up, and cash is preferable if the stock goes down. If the stock stays flat, there is no difference between RSU/cash split.
I think most people's assumption that the market will go up over time so most people would prefer RSUs. How accurate that assumption is in the short-medium term remains to be seen.
To be more general, RSUs are preferable if the stock goes up higher relative to other investments that the grantee could have picked, and cash is preferable if the stock performs worse than other investments that the grantee could have picked. For example, if the stock rises but performs worse than an index fund, then the grantee would have been better served to have gotten cash and put it into a no-effort index fund. If the grantee has an aptitude for stock picking, the balance sways even more towards cash being preferable.
And yet if you look at most tech stocks that "halved" this year (which, btw, is an overstatement for most), they're still up from 2 years ago. My company's stock is down 25% but my RSUs that vested this year were still worth a hell of a lot more than when they were granted 2,3, or 4 years ago.
