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This doesn't work for a lot of mature tech companies. RSUs are as good as cash at vest time, but the delay between grant and vest basically leaves you with vari

by bilalq 3y ago

This doesn't work for a lot of mature tech companies. RSUs are as good as cash at vest time, but the delay between grant and vest basically leaves you with variable pay. You can't just ignore it though, since the targeted value of your RSU compensation alone will be higher than base pay in many cases.

JohnFen 3y ago
> You can't just ignore it though, since the targeted value of your RSU compensation alone will be higher than base pay in many cases. Sure you can. You just gauge based on the base pay alone. If that's adequate, I'm good to go. If it isn't, then I'm not. That way, I'm not hurt if the stock ends up being worthless. I may be leaving money on the table, of course, but I'm also eliminating unnecessary risk. Other people may have different risk tolerances, naturally. My main point is that counting stock as part of a compensation package is the same as buying stock -- you need to be aware that you're taking on risk.
- sokoloff 3y ago
  In using that strategy, you're trading one risk for another risk, not eliminating risk.
  - JohnFen 3y ago
    What risk am I taking on?
    - sokoloff 3y ago
      The risk of foregone upside in expected value (or, alternately, expected utility) to the extent that you are mis-valuing one of your genuine choices. If Netflix is going to pay you $200K/yr and Facebook $180K plus $400K in FB shares vesting over 4 years, IMO, it's an error (IMO) to conclude that Netflix's offer is $20K/yr more than Facebook.
      - JohnFen 3y ago
        Ah, OK. I don't consider that a risk at all, but I get that others might. This sort of thing is what makes acceptable risk evaluation such a personal thing. To me, "risk" means that income I'm expecting doesn't happen. The risk you're talking about doesn't count as risk to me, because any money left on the table is money I wasn't expecting to get in the first place, so I haven't lost anything. I just failed to gain something that I could have. I don't think my attitude is incorrect (it's saved me from a lot of actual loss over the decades), and I also don't think that yours is incorrect. It's more about what makes the most sense considering our personal situations, temperaments, etc. I also acknowledge that I'm unusual in the HN crowd in that I am not primarily money-driven. When I'm considering a position, the compensation is the third or fourth most important consideration, not the first.
        vidarh 3y ago
        You can talk about it opportunity. You might apply a (heavy) discount to that opportunity, sure, and personally I agree it's not a "loss" if you choose it away, but it it is an opportunity that has a value even if you decide a 100% discount is the right value. I'm reasonably money-driven, but I also heavily discount the value of stock or options, because while I've come out ahead on my shares and options in almost every company I've worked in, the effective return has ranged from very decent multiples of the initial valuation to 1% of it, so I'm very comfortable applying a very high discount (reducing said discount for e.g. listed companies - but one of my best returns was from a listed company where the best engineer on my team was still under water on the vast majority of his options 7 years in, and now long after their expiry the price has never been as high as then)
        sarchertech 3y ago
        I completely understand having a low risk tolerance. But I think discounting stock offers by 100% is going further than is reasonable even for the most risk averse person. Put it this way, at the limit. Company A pays $120k + $1,000,000 dependent on the result of a random number generator where there is a 99.999% chance that you'll get the money. Company B pays $125k. All else being equal, any rational person would obviously choose Company A. But if you're saying you discount variable pay by 100%, you would choose company B. Or think of it another way. How much are you willing to pay to avoid loss. What you're doing is equivalent to buying insurance to avoid loss. How much would you pay for such insurance? There has to be a limit.
- pb7 3y ago
  Since you evaluate based on pay alone, next time you judge two or more offers with public equity, let me unconditionally buy all your equity for $5K. That should tip the scales if the base is the same.
  - JohnFen 3y ago
    I think that you're conflating "not taking it into account when evaluating the offer" with "not caring about it at all". What I do is the same as the commenters who say they discount the face value of stock when assessing the compensation. I just discount it more deeply than they do.
    - sarchertech 3y ago
      If you aren’t willing to sell the equity for $5k then we’ve found the lower limit of how much value you place on it. Meaning that you should be considering at least $5k of that equity when comparing compensation.
- bilalq 3y ago
  Stock at a big tech company is incredibly unlikely to suddenly end up worthless. Let's say your base pay is $160k and you have $240k in RSUs vesting each year. It would be ridiculous to take another offer of $250k or $300k cash elsewhere. Maybe at $350k you might prefer straight cash. Someone else's cutoff might be at $375k. In the end, you can't ignore it.
  - jwestbury 3y ago
    Netflix dropped >70% in six months in late 2021/early 2022. That $400k total comp package would suddenly be $230k or so -- less than the $300k cash offer. I recognise Netflix offers are usually all-cash, but it's an illustrative example. Feel free to substitute with Facebook stock. As a bit of real-life anecdata, I knew someone who struggled to pay their mortgage when AMZN dropped ~30% in 2018.
    - maerF0x0 3y ago
      The real trick is to realize that having a 4 yr grant valued at present value is tough. only hindsight can give you a perfect picture of what you were compensated. This is partly why folks should always be selling at least a portion of their equity and shifting it into other assets smoothly as they vest. My middle ground was to sell ~50% of my vesting meaning I took some risk off the table, but also wouldn't feel left out if it moonshot. People with economics (game theory) degrees likely could figure out a better way to deleverage + prevent fomo.
tracker1 3y ago
Or the company is in a slump and decides to downsize you a week before your RSUs vest.
- sarchertech 3y ago
  That’s possible, but after the 1 year cliff assuming quarterly vesting you’re only going to be out at most 3 months of “earned” stock. Either way you just figure the chance of losing all or some of it into your expected value calculation.
  - tracker1 3y ago
    Annual vesting, and got nothing.
    - sarchertech 3y ago
      So at worst you were out just under a years worth equity pay. That seriously sucks, but it is possible to build that into expected value. Expected stock value * (1 - likelihood you get laid off).

by bilalq 3y ago

JohnFen 3y ago

> You can't just ignore it though, since the targeted value of your RSU compensation alone will be higher than base pay in many cases. Sure you can. You just gauge based on the base pay alone. If that's adequate, I'm good to go. If it isn't, then I'm not. That way, I'm not hurt if the stock ends up being worthless. I may be leaving money on the table, of course, but I'm also eliminating unnecessary risk. Other people may have different risk tolerances, naturally. My main point is that counting stock as part of a compensation package is the same as buying stock -- you need to be aware that you're taking on risk.

sokoloff 3y ago
In using that strategy, you're trading one risk for another risk, not eliminating risk.
- JohnFen 3y ago
  What risk am I taking on?
  - sokoloff 3y ago
    The risk of foregone upside in expected value (or, alternately, expected utility) to the extent that you are mis-valuing one of your genuine choices. If Netflix is going to pay you $200K/yr and Facebook $180K plus $400K in FB shares vesting over 4 years, IMO, it's an error (IMO) to conclude that Netflix's offer is $20K/yr more than Facebook.
    - JohnFen 3y ago
      Ah, OK. I don't consider that a risk at all, but I get that others might. This sort of thing is what makes acceptable risk evaluation such a personal thing. To me, "risk" means that income I'm expecting doesn't happen. The risk you're talking about doesn't count as risk to me, because any money left on the table is money I wasn't expecting to get in the first place, so I haven't lost anything. I just failed to gain something that I could have. I don't think my attitude is incorrect (it's saved me from a lot of actual loss over the decades), and I also don't think that yours is incorrect. It's more about what makes the most sense considering our personal situations, temperaments, etc. I also acknowledge that I'm unusual in the HN crowd in that I am not primarily money-driven. When I'm considering a position, the compensation is the third or fourth most important consideration, not the first.
      - vidarh 3y ago
        You can talk about it opportunity. You might apply a (heavy) discount to that opportunity, sure, and personally I agree it's not a "loss" if you choose it away, but it it is an opportunity that has a value even if you decide a 100% discount is the right value. I'm reasonably money-driven, but I also heavily discount the value of stock or options, because while I've come out ahead on my shares and options in almost every company I've worked in, the effective return has ranged from very decent multiples of the initial valuation to 1% of it, so I'm very comfortable applying a very high discount (reducing said discount for e.g. listed companies - but one of my best returns was from a listed company where the best engineer on my team was still under water on the vast majority of his options 7 years in, and now long after their expiry the price has never been as high as then)
      - sarchertech 3y ago
        I completely understand having a low risk tolerance. But I think discounting stock offers by 100% is going further than is reasonable even for the most risk averse person. Put it this way, at the limit. Company A pays $120k + $1,000,000 dependent on the result of a random number generator where there is a 99.999% chance that you'll get the money. Company B pays $125k. All else being equal, any rational person would obviously choose Company A. But if you're saying you discount variable pay by 100%, you would choose company B. Or think of it another way. How much are you willing to pay to avoid loss. What you're doing is equivalent to buying insurance to avoid loss. How much would you pay for such insurance? There has to be a limit.
pb7 3y ago
Since you evaluate based on pay alone, next time you judge two or more offers with public equity, let me unconditionally buy all your equity for $5K. That should tip the scales if the base is the same.
- JohnFen 3y ago
  I think that you're conflating "not taking it into account when evaluating the offer" with "not caring about it at all". What I do is the same as the commenters who say they discount the face value of stock when assessing the compensation. I just discount it more deeply than they do.
  - sarchertech 3y ago
    If you aren’t willing to sell the equity for $5k then we’ve found the lower limit of how much value you place on it. Meaning that you should be considering at least $5k of that equity when comparing compensation.
bilalq 3y ago
Stock at a big tech company is incredibly unlikely to suddenly end up worthless. Let's say your base pay is $160k and you have $240k in RSUs vesting each year. It would be ridiculous to take another offer of $250k or $300k cash elsewhere. Maybe at $350k you might prefer straight cash. Someone else's cutoff might be at $375k. In the end, you can't ignore it.
- jwestbury 3y ago
  Netflix dropped >70% in six months in late 2021/early 2022. That $400k total comp package would suddenly be $230k or so -- less than the $300k cash offer. I recognise Netflix offers are usually all-cash, but it's an illustrative example. Feel free to substitute with Facebook stock. As a bit of real-life anecdata, I knew someone who struggled to pay their mortgage when AMZN dropped ~30% in 2018.
  - maerF0x0 3y ago
    The real trick is to realize that having a 4 yr grant valued at present value is tough. only hindsight can give you a perfect picture of what you were compensated. This is partly why folks should always be selling at least a portion of their equity and shifting it into other assets smoothly as they vest. My middle ground was to sell ~50% of my vesting meaning I took some risk off the table, but also wouldn't feel left out if it moonshot. People with economics (game theory) degrees likely could figure out a better way to deleverage + prevent fomo.

tracker1 3y ago

Or the company is in a slump and decides to downsize you a week before your RSUs vest.

sarchertech 3y ago
That’s possible, but after the 1 year cliff assuming quarterly vesting you’re only going to be out at most 3 months of “earned” stock. Either way you just figure the chance of losing all or some of it into your expected value calculation.
- tracker1 3y ago
  Annual vesting, and got nothing.
  - sarchertech 3y ago
    So at worst you were out just under a years worth equity pay. That seriously sucks, but it is possible to build that into expected value. Expected stock value * (1 - likelihood you get laid off).