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One crucial thing not often talked about with this plan is that the stock is granted and vests quarterly. In fact, the amount of stock you get each quarter is a

• LudwigNagasena 4y ago
  What is even the point? Some of sort tax benefits?
• londons_explore 4y ago
  So how is it different than just paying the employee cash and recommending that they buy shopify stock? Is it just a user friction thing?
  • WaxProlix 4y ago
    It's easier to make stock out of thin air (well, sort of) than cash, and accounting wise it's much more pleasant for companies to do so.
  • Vvector 4y ago
    Stock Grants are not an "expense" under Generally Accepted Accounting Principles. So by paying in stock, instead of salary, it increases profits on paper. It does help with cash flow and other tangible benefits. Most employees would be wise to divest much of their company stock as soon as they are allowed. Don't have all your eggs in one basket.
    • jayp 4y ago
      Is this really true?
      • kgwgk 4y ago
        No.
      • deleted 4y ago
        [deleted]
    • jacques_chester 4y ago
      This is not my understanding at all. Share compensation is considered an expense because it reduces the value of the shares held by other shareholders. It's advantageous for cashflow but neutral vs cash on the income statement. Disclaimer: I am not an accountant, this is not financial or accounting advice. Disclosure: I work for Shopify, but this should not be taken as a statement about Shopify's accounting or financial practice.
      • deleted 4y ago
        [deleted]
      • kazinator 4y ago
        It seems like it would be along these lines. - The company may have to issue new stock for this. That's like a loan: some entity gives cash, in exchange for a piece of the pie. Not in the expense side of the ledger. This is where the value of the shares gets diluted, but I don't think that fluctuations in the value of stock go into the ledger Publicly traded stock fluctuates all the time; that can't be going into the books! - If the entity is some body of the company itself which is buying the stock, in order to give it to employees, than that plausibly looks like an expense. Buying stock (in anything) would normally be recorded as an asset, I would think, but if the intent is to give it away, then it looks like an expense. Analogy: a laptop bought for company use would be an asset, but if it's intended to be ginve away as a door prize in a raffle, then it's an expense.
        • kgwgk 4y ago
          What "would be" along those lines? GAAP are what they are.
    • sokoloff 4y ago
      This is incorrect by almost every reading. (There is a "technically correct" reading that the grant is not an expense, but the vesting thereof is and most of your post is concerned with the "paying in stock" angle, not the granting of future paying in stock.) https://carta.com/blog/what-is-asc-718/ https://carta.com/blog/what-is-asc-718/ https://www.investors.com/news/technology/amazon-stops-pretending-that-stock-compensation-isnt-a-normal-cost/ https://www.investors.com/news/technology/amazon-stops-prete... (see the third paragraph about $FB) What you might be confusing it with is non-GAAP accounting, which some companies prefer to cite/reference in management conference calls and letters to investors, where equity-based compensation is often backed out to arrive at the non-GAAP figures.
      • overrun11 4y ago
        Maybe he/she is thinking of a cash expense? Stock compensation will inflate operating cashflow on the statement of cashflows.
• paxys 4y ago
  This is becoming more and more common at large tech companies. Stripe does the same thing. 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.
  • ryanisnan 4y ago
    If I'm an employee earning equity vs cash, I damn well want to make sure my incentives are aligned with the companies, e.g. the value increasing. This seems a bit perverse.
    • JAlexoid 4y ago
      The best way to increase stock value in short/mid term - cut costs... (aka your salary/position) 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.
      • ryanisnan 4y ago
        Great point! As a non FAANG employee, I am mostly considering the startup landscape, where I do expect my contributions to directly correlate to share value.
  • twblalock 4y ago
    Why on earth would employers want to eliminate those massive returns? That's been an amazing tool for employee retention, especially for FAANG. If they reverted to paying cash plus bonus, they would be less competitive when hiring and retaining people. 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.
• modeless 4y ago
  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.
  • pastor_bob 4y ago
    Yes, to me this basically sounds like ESPP without the discount
    • kodah 4y ago
      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.
      • MikeTheRocker 4y ago
        I don't understand how it could be preferable to be paid in public equity you could otherwise buy with cash
        • pxx 4y ago
          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.
        • zachur 4y ago
          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.
• knodi123 4y ago
  > So what they've done is nearly completely untie compensation from the stock price. But it IS tied to the change in price- right?
  • jxf 4y ago
    No. Your total compensation is fixed. You're deciding how much of it goes to stock (as opposed to your _grant size_ being fixed).
  • pc86 4y ago
    Using the example above, you get $25,000 in stock every 3 months. So the number of shares are variable, so the price is irrelevant to you. If you sell as soon as you get it, it's the same as $25k cash, e.g. completely divorced from the stock price. If it was tied to the stock price, like every other RSU program on the planet, you'd get x number of shares. So as stock price goes up, your compensation goes up. Your compensation is tied to the stock price.
• cma 4y ago
  > So what they've done is nearly completely untie compensation from the stock price. Dirty secret is at somewhere the size of Spotify no normal employee is going to move the stock price on their own to any extent, so these incentivization things even if they were aligned to increasing when the price increases only could incentivize positive behavior towards increasing the stock price if the employee didn't understand tragedy of the commons or something.
• hedora 4y ago
  I have heard of these. I wouldn't accept an offer like this unless the fixed comp was 2-3x normal market value for my services. (The stock of my employers usually goes up during my vesting periods, and usually by well more than is needed to double my total comp -- the 2-3x is risk adjusted)
  • disgruntledphd2 4y ago
    If your career mostly spans the last decade, it should be noted that this was a really really weird decade in terms of asset appreciation vs inflation.
• foobarian 4y ago
  If there is a vesting start delay then it's still not equivalent to an ESPP. But once you're in the middle of the pipeline I guess it's pretty similar.
• pc86 4y ago
  It is even worse than an ESPP, but also pushes your compensation out up to 90 days from when you should be earning it. It's literally the worst combination of all the options.
• 3bproblem 4y ago
  Stripe does this, and Coinbase's move to annual equity grants also has a similar effect. There are a lot of tradeoffs in all directions, but the fundamental one is that the reduction in risk naturally carries an equivalent reduction in ability to participate on the upside (eg table at the bottom here: https://www.aeqium.com/post/a-survey-of-equity-refresh-programs https://www.aeqium.com/post/a-survey-of-equity-refresh-progr...). You can also argue that it's not good for employees, because downside is capped (stock goes to $0, you keep your salary) but upside is unlimited (Shopify becomes the next Microsoft, you're still driving a Kia).
  • leoqa 4y ago
    The reality is that RSUs are a better deal because of the unlimited upside. If my RSUs go to zero, I jump to another company and reset my cost basis- there is actually little risk here beyond the first year lock up.
    • akavi 4y ago
      That's effectively an implicit call option. You can buy an explicit version on the public market. The question is "Is the cost of an explicit call option greater than the cost of finding a new job?" There is some benefit in that with an explicit call option, you have to pay up front, while with job switching, you only incur the cost if the implicit option "expires worthless". But that's balanced by the fact that with the implicit option you're exposed to sector-wide risk (eg, see the current tech-wide turndown), while you're not with the explicit one.
      • gpderetta 4y ago
        Pretty much. Also with the call option you have to pay the premium (and possibly the rollover cost if for some reason you wanted to match exactly the equivalent RSU schedule), on the other hand if the stock price goes down at worst you lose the premium, while the downside with RSU can be much larger. In practice it would be foolish to invest a large part of your salary in call options of the company you work for. But for the same reason RSUs are also similarly risky and you should always prefer cash and diversify your risk instead. Edit: If you buy an at the money call and sell the equivalent put you can reduce the premium and replicate the risk profile of the RSU. But I'm not an option trader.
• lumost 4y ago
  This might be better for most of employees. Big companies rarely benefit from the standard “lock in folks on the upswing” and “incentivize them to leave on the downswing” that stock grants usually do. When the stock goes up, difficult conversations emerge when the company realizes it’s paying someone the equivalent of an entire team. On the way down it’s hard to manage comp expectations. An individual engineer rarely impacts the bottom line in a material way. Which is to say, if tech workers can demand high six figure pay - it should probably be mostly cash for most public companies and individuals.
• foolfoolz 4y ago
  this is a massive pay cut for anyone working at a growing company. you lose so much potential upside with the stock if you keep “buying in” each quarter/year instead of once at the beginning of a 4 year grant and hoping it goes up. this looks like a great way for companies to protect themselves from spending too much on employee stock compensation and frame it as a gift of choice
• JimmieMcnulty 4y ago
  (One of) the largest retailers in the world also does this, I believe.
• deleted 4y ago
  [deleted]
• gopalv 4y ago
  > they've done is nearly completely untie compensation from the stock price. Not entirely, they've created a relationship, but it is the opposite of what is normally considered in "line goes up" thinking. Usually when a company/market does poorly, people don't have a strong reason to stick around as the possible compensation dwindles down. The stock price on your joining date somewhat controls how many stock items you get. This is mostly luck - your "birth" into the company controls the payout multiple for the next 4 years. Once the company starts doing poorly, it struggles to justify handing out extra compensation to employees and even if a select few are handed out more stock, it is usually not enough to keep a majority of folks in the building. So with standard RSU models it'd be a good idea to join a company which is currently rated a BUY, but it is not great to stick around and try to wait for a turn-around if you got RSUs issued in boom times. The "buy 100k$ every quarter" sort of model flips that thinking around. When the company does poorly, you get to sort of double down your bets on on the recovery path. And if your work pulls off a recovery, then you get rewarded directly for sticking through the bad patch (or if you don't believe in it - sell it the same day you get it and put it in ETFs, but not quit from a pay dip). Also if the company is "buying" stock with cash intended for an employee instead of issuing it from some pool (also without an RSU discount), then this also has a nice effect of masquerading as a stock-buyback. So it directly incentivizes people to stick at a company through a bad spot or at least softens that loss of critical talent when the company hits a rough patch without any additional distraction to the board.
• acchow 4y ago
  > You neither benefit significantly nor lose significantly as the stock moves around. I've never in my life seen an equity plan like it, and that's not a comment on whether it's good or bad, just that it's unusual. I thought Stripe moved to this compensation model last year
  • tyre 4y ago
    Yes we have this (I work at Stripe). It is an annual recurring grant that has a one year cliff then renews automatically to vest quarterly. Say you get an offer with $100k in RSUs. That’s then divided by the stock price and that’s your initial grant. It vests in one year. After that you would do the same math again, except this time 1/4th vests quarterly. It has pros and cons. It works well in challenging macroeconomic environments for the reasons others have mentioned.
• ranman 4y ago
  Do you know if this creates significant administrative overhead?