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In the specific case of RSU's, there is another advantage to the company: In the event of a downturn (where revenues and stock price are correlated, which they

In the specific case of RSU's, there is another advantage to the company: In the event of a downturn (where revenues and stock price are correlated, which they usually are), the company automatically cuts everyone's salary. Krugman is a big fan of talking about the influence of the Zero Lower Bound on nominal wages and price deflation. Giving employee's a large fraction of their salary in stock offsets those difficulties somewhat. If the tech bubble bursts, the large companies may not have to lay off as much labor to stay afloat, since their per-unit costs will automatically go down. Edit: The article touched on this briefly, noting the disadvantage to the employees in the case that their particular firm does poorly while other companies in the market are doing OK. I'm specifically talking about industry-wide downturns. The ability to cut everyone's salary this way may keep unemployment from soaring as high as it would otherwise.

superuser2 11y ago
If the cash portions of salaries are being paid out of revenues (company is profitable), why does the stock price matter?
- brandmeyer 11y ago
  Downward nominal wage rigidity can be rephrased as: Nobody likes to get a pay cut. (Base) pay cuts piss employees off. When revenues fall, the stock price will fall, and automatically reduce employee salary as a result. But since the human perception of stock compensation is more like "gravy" than "essential to my way of life", I don't think that a stock price drop is as perceived to be as bad as a nominal pay cut, even though real employee pay is cut in either case.
kmonsen 11y ago
Not sure if this is what you mean, but a big disadvantage is that stocks vest over (usually 4) years. Every year the company can choose to give you more, or not. If not they are cutting your salary.
- brandmeyer 11y ago
  > If not they are cutting your salary. Maybe, maybe not. If the stock price is beating inflation, then you're still getting a raise here, too. Failing to renew your stock compensation at the end of the four-year period would be a pay cut.

superuser2 11y ago

If the cash portions of salaries are being paid out of revenues (company is profitable), why does the stock price matter?

brandmeyer 11y ago
Downward nominal wage rigidity can be rephrased as: Nobody likes to get a pay cut. (Base) pay cuts piss employees off. When revenues fall, the stock price will fall, and automatically reduce employee salary as a result. But since the human perception of stock compensation is more like "gravy" than "essential to my way of life", I don't think that a stock price drop is as perceived to be as bad as a nominal pay cut, even though real employee pay is cut in either case.

kmonsen 11y ago

Not sure if this is what you mean, but a big disadvantage is that stocks vest over (usually 4) years. Every year the company can choose to give you more, or not. If not they are cutting your salary.

brandmeyer 11y ago
> If not they are cutting your salary. Maybe, maybe not. If the stock price is beating inflation, then you're still getting a raise here, too. Failing to renew your stock compensation at the end of the four-year period would be a pay cut.