8 ms·
It's going to be an interest year or two if all tech stocks continue to fall. Most of these companies pay largely in RSUs for more senior ICs and managers. RSUs
by mabbo 4y ago
It's going to be an interest year or two if all tech stocks continue to fall. Most of these companies pay largely in RSUs for more senior ICs and managers. RSUs strike a price at the grant date. If you're paid 50% in stock, and the stock falls by 24%, you just took a 12% pay cut.
Meanwhile, the new guy doing the same job as you got their RSUs granted at today's stock price, but the target value for someone at that job level- no pay cut for them, effectively.
It's a recipe for a lot of people swapping jobs just to keep their incomes at the same level.
Or, companies can do as my employer did (bias note) and switch to a new comp system that avoids these problems: https://news.shopify.com/rewriting-the-story-of-compensation https://news.shopify.com/rewriting-the-story-of-compensation
- qbasic_forever 4y agoMost companies give cash bonuses when the stock tanks. I remember Microsoft doing this and I think I read recently Amazon was doing it too, or at least adjusting the mix of stock vs cash compensation.
- whimsicalism 4y agoMicrosoft has not done this recently.
- qbasic_forever 4y agoIt happened under the Balmer years a few times.
- mabbo 4y agoAmazon never did this. They gave some extra stocks.
- endisneigh 4y agoShopify’s system drastically limits the upside which is unattractive
- mabbo 4y agoIf you want upside, you can get paid almost entirely in options. The upside is huge.
- endisneigh 4y agoSure, but options are not RSUs. Shopifys system is little different than all cash and an employee stock purchase plan. For better or worse.
- mabbo 4y agoThen you can also get paid in stock. Like, the system lets you pick between cash, options, RSUs. Whichever is your favourite, take it.
- endisneigh 4y agoThe point is that the way it’s implemented is effectively a stock purchase plan.
- Ancalagon 4y agoAny time a company uses "flex" in the name I now associate it with generally making things worse. "Flex PTO", "Flex Pay", "Flex Role" (aka remote but not really)
- adam_arthur 4y agoIt limits the downside too. There's a lot of upside already to making 300k+/year and investing it wisely. Guaranteed millionaire status with close to 0 risk. Look how spoiled many of us have become in tech, though, that we have people like you saying this. It's not gonna last forever
- endisneigh 4y agoSaying that RSUs have more upside than full cash comp has nothing to do with being spoiled lol. It’s just a mathematical reality.
- escapecharacter 4y agoAlso, mechanically, as someone who was paid primarily in RSUs last year, you pay taxes based on their value at the date of grant. This is painful if they go down quite a bit between when you receive them vs tax time.
- curiousllama 4y ago> With RSUs, you are taxed when you receive the shares. Your taxable income is the market value of the shares at vesting. You pay taxes at date of vest not grant. Small terminology difference, but important - if you sell your RSUs immediately, you never lose $ after taxes. https://www.schwab.com/public/eac/resources/articles/rsu_facts.html https://www.schwab.com/public/eac/resources/articles/rsu_fac...
- csunbird 4y agoIn Europe, you pay taxes, as soon as you get them.
- DocSportello 4y agoIn my part of Europe, you pay on sale, not vest or grant.
- ksala_ 4y agoTotally depends on the state. In Ireland you don't pay anything when the stocks are granted to you (you're promised X stocks in Y months), you pay income tax (PAYE) on them when they vest (you receive the stocks) and then you pay capital gain tax (CGT) on the gains (sell price - vest price) when you sell them. Example: you're granted 1 share today to vest in 1 year. In 1 year the share is worth 100, it vests and you pay PAYE in this (it can either come from your salary, or by selling the stock). If the stock rise to 150 and you sell it after, you pay CGT on 50.
- disgruntledphd2 4y ago> Example: you're granted 1 share today to vest in 1 year. In 1 year the share is worth 100, it vests and you pay PAYE in this (it can either come from your salary, or by selling the stock). If the stock rise to 150 and you sell it after, you pay CGT on 50. Huh? Can you actually keep the stock and give revenue the money out of your post-tax? I wasn't aware that was possible.
- sicp-enjoyer 4y agoThere is risk involved for both parties. It's not cash, even if it has been treated like it in the past.
- pavlov 4y agoRSUs are refreshed annually. So if the stock price is now in the doldrums, at least you can hope to get the refresher at a good price in February (or whenever).
- ryandrake 4y agoThis is not true for all tech companies, including FAANGs. For some (many?), the first grant is all you are entitled to, and subsequent "refresh" grants are based on performance, manager discretion, or other non-guaranteed criteria. Hence the "4 year cliff" many people complain about.
- pavlov 4y agoTrue. I was talking about Meta specifically (but failed to be explicit about that). The refreshers at Meta are mostly mechanical based on your role and level, and they’re allocated in dollars even though the grant is converted to shares at a specific date.
- adam_arthur 4y agoI imagine the dollar amount will get lowered over time as the stock price falls though. Otherwise the company is creating a lot of dilution for shareholders. e.g. to reach the same dollar amount requires more shares. And Meta is already crashing explicitly because their operating costs are out of control and outpacing their earnings growth But that would just be pragmatic, they may not actually be doing that. Good management in this situation would be refreshing grants only for the top half of performers and letting the others choose to leave, IMO
- whimsicalism 4y agonot in most companies they arent
- swarnie 4y agoInflation already cut my salary by 12% a year lol.
- nemo44x 4y agoYeah all those 1200 SqFt ranch houses in the valley might drop to something like 1 million dollars.
- adam_arthur 4y agoThat was already going to happen anyway due to remote work. CA has some of the fastest falling home prices right now
- dylan604 4y ago>It's a recipe for a lot of people swapping jobs just to keep their incomes at the same level. Job swapping assumes these tech companies are no longer under a hiring freeze. It also assumes that these companies won't recognize why the mad rush of job swaps is happening and just lower the salaries for new hires.
- time_to_smile 4y ago> If you're paid 50% in stock, and the stock falls by 24%, you just took a 12% pay cut. On top of this, my experience is that a shocking number of people getting a large part of their comp in RSUs don't diversify when they vest. I don't work at a FAANG, but 1/3 of my TC is RSUs. Most of my coworkers look absolutely aghast whenever I mention that I liquidate all my vested shares as soon as the trading window is open. Many of my friends that do work for FAANGs, getting >50% of their TC as RSUs likewise don't diversify as soon as possible, but hang on to it. What's crazy is if I ask my coworkers "If you had that same amount of vested RSUs in cash, would you invest in our company?" They all laugh and say "no!", but then immediately claim that they won't cash-out and reinvest. Point being I suspect that individual net worths of a wide range of tech workers are getting absolutely destroyed right now.
- dboon 4y agoWhat about capital gains? I hold mine for a year because I was under the impression that liquidating immediately would cause you to pay short term capital gains rather than long term.
- AnotherGoodName 4y agoThe stock price has to go up from the purchase price for capital gains. If you sell immediately on vesting this should be 0.
- adam_arthur 4y agoThe face value of the RSU is treated as income (taxed) when it vests. If the stock then appreciates, you have to hold it for a year to get long term capital gains tax on the appreciated amount (not the original vest amount). So there's no tax advantage to waiting to sell. Only if you wait and it happened to go up in that time, and then you don't want to incur short term cap gains on that appreciation. There is a big tax liability problem if you choose not to sell and the stock declines though. You may end up owing more in taxes than the stock is worth in some cases
- 4y ago
- m3kw9 4y agoPay cut is relative. If you started 5 years ago you still wouldn’t have a pay cut. But if you only count the fall from the peak, yes you have a “pay cut”.
- wilde 4y agoThat’s not how it works. Meta (like many large employers) issues refresh stock grants yearly. So everyone’s current comp is down.
- awinder 4y agoIs there some different treatment of money spent on options (vs RSUs) that isn’t apparent from the Shopify blog post? I’m not understanding why someone would pick options ever in this scenario but maybe I’m just getting thrown off by demo text in the blog post
- mabbo 4y agoOptions cost, I believe, 0.4X current stock price for a 10-year option to buy at today's price. It's a great deal if you plan to stay with the company for a long time and think the stock will go up quite a bit, because you multiply your gains.
- AnotherGoodName 4y agoThe stock is down 70% to be clear. 20% is just what happened today. Now there's three hits. Employees generally kept their stock. So their savings went down. The pay is down as you said. Lastly inflation. In addition job mobility is down. There's still plenty of tech jobs but it's definitely down and not as easy to just switch. It's one hell of a return to earth although perhaps overdue.
- cprayingmantis 4y agoNo one ever seems to talk about the fact that RSUs should be treated as bonuses not as real income. It’s nice if they work out but you should never rely on them being worth anything.
- mathgladiator 4y agoNot only that but future RSU should be treated as part of your portfolio which means that you must sell every vesting cycle. I did this while at Facebook eating the shit while the stock price grew, but now... I feel like a genius.
- tomduncalf 4y agoIt’s definitely an interesting approach by Shopify and nice to see someone challenge the status quo. What’s the downside though? Do you get the same dollar amount whether you choose RSU or cash? Does the comp compare favourably to the top of market companies who pay mostly RSUs? Can you potentially lock in a low strike price for your grant over four years or is it more like an ESPP? (Of course the last year showed this is not always a winning strategy lol). My assumption is that paying employees in RSUs works out more favourable for the companies than paying all cash so I’d expect it to be lower if you take all cash (I have zero knowledge of accounting mind).