Earlier quoted context omitted.
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 an…
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…
When public companies give stock to their employees, they dilute the stock as much as if they issued stock and sold it. So the cost of that compensation is the same as if it were in cash.
If everyone knows that say, Netflix's stock price is guaranteed to go up 20% a year for the next 5 years, then the market price of that stock would suddenly jump up to the point where it no longer makes excess returns. So the market price of the stock reflects the company's (risk-adjusted) growth potential already. This also applies to non-public companies with any amount of maturity - the marginal investor has a good sense of what the company is worth and does not want to lose out by issuing stock below that.
Put these two together and giving employees stock is economically not very different to giving them money and they choosing to invest it in mutual funds. The main difference is that you make your employees' lives slightly harder - with taxation and with the fact that they need to sell stock to get cash for what they want to buy or invest in.
The reason that stock options are preferred, especially for private companies, are none of them very good. Firstly employees have an inflated perception of what their company will be worth in the future. They assume that it's going to be AirBnB, not WeWork, not Palantir, and not the failed start-up that you've never heard of. Secondly employees also don't correctly discount uncertainty. Would you rather have the cash to buy your dream home/pay off your mortgage, or take a 10% chance of 10 times that amount of money? To most of us the second option is worth considerably less. Thirdly companies sometimes feel better about giving out pieces of paper that they have an unlimited supply of than giving out their own cash, even though it's a wash financially. And lastly there used to be some tax advantages to firms paying with stock options - those were loopholes which have largely been closed.
Making your employees into investors (by giving them stock options) only made economic sense when venture capital money was scarce and expensive. This has not been the case for a long time.