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Shopify lets staff decide cash-stock pay mix as shares dive

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Re: Shopify lets staff decide cash-stock pay mix as shares dive

#131

Post by everforward »

gpderetta wrote: post #71
twblalock wrote: post #58

Earlier quoted context omitted.

From experience, that's not true. A bonus of $N is worth $N. A stock grant of $N has turned out to be worth $2.5*N or even more, by the time it finishes vesting. Could it have gone the other way? Of course, and it's often likely that at startups stock could be worth zero. But at large companies, even with the recent dips in stock prices, employees who joined 2+ years ago are better off with stock grants than they wou…

If you get the cash immediately, then you still buy the stock on the market if you expect it to go up. If the cash also comes on a vesting schedule, if you expect the stock to go up, you could buy call options on the market with expiries that match the original schedule, at the current strike price. Of course this has much more friction and some cost.

Right, but the stocks start earning value immediately and cash bonuses do not. Assuming gains are even at 5% per year, and the bonus is $100k (because the math is easier):

With RSU's, you get $400k1.05^4 (4 years of compounded growth)

With cash, assuming you immediately invest the money, you get $100k1.05^4 + $100k1.05^3 + $100k1.05^2 + $100k *1.05

Running those numbers, the RSU's are worth $486,202 at the end and the cash is worth $452563. RSU's appreciated by $86k over the duration, cash appreciated $52k over the duration.

It's the time value of money. Getting it earlier makes it worth more.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#132

Post by foolfoolz »

tensor wrote: post #28

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 also variable. E.g. if you choose to have 100k of equity each year, each quarter you get whatever amount of units equates to 25k of stock. So what they've done is nearly completely untie compensation from the stock price. You neither benefit significantly nor…

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

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#133

Post by time_to_smile »

hedora wrote: post #104
AYBABTME wrote: post #86

Earlier quoted context omitted.

There's literally no advantage to hang onto them, versus selling them on vest day and reinvesting in a wide set of tech stocks (if that's what you want to invest into).

There is an advantage if you are in the middle of a tech rally, and the other option is the investing in whole market. All you need to do is time the next downturn... I have (and continue to) err on the side of diversification. Without fail, I have simultaneously regretted it and done better than colleagues that held and tried to time the market. I could have realisitically made 2x what I did. However, I also could h…

There's still no advantage in a tech rally, you'd be far better of reinvesting highly correlated companies, where you have much more liquidity (since you're not only allow to sell during trading windows) and you also are allowed to perform better hedging in the case the market does start to get shaky, plus your portfolio will not drop based on the possible misstep of a single company.

> I have (and continue to) err on the side of diversification

I'm in the same camp as you, and the point I always make is that: If I'm wrong and our company stock sky rockets, beating everyone else in the market, then great! I still have unvested RSUs, we'll get larger bonuses, plus my job security has increased, sure I missed out on even more gain but I'm in a good place!

If I'm right, and something bad happens to my employer, at least my loses will be reduced by my other investments. I don't have to worry about everything falling apart at once.

Which I suppose is the entire point of variance reduction in the first place: it makes the great times a bit less great, but also makes the worse times not so bad.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#134

Post by sokoloff »

ulfw wrote: post #107
modeless wrote: post #72

Earlier quoted context omitted.

If you have RSUs worth 200k per year, standard practice is that you get one grant of 800k at the start of employment, vesting over four years. If you got 200k cash instead, you couldn't buy 800k stock in the first year. That's an extra 600k of upside exposure. If that 600k of extra stock appreciates a lot in the first few years, you are far better off with the RSU grant. If it doesn't, you can quit before it vests an…

I don't know a single tech stock that has (significantly) appreciated over the last 12 months. I know a ton that depreciated by 2/3rds.

Which leaves the employee with less upside going forward, at which point they can switch companies and "start over" with an RSU grant that is at par. In this regard the initial grant has a bit of flavor of an option. You have the option to stay on the vesting schedule or change companies and start a new vesting schedule, but any losses on unvested amounts don't hit you if you switch.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#135

Post by gpderetta »

everforward wrote: post #131
gpderetta wrote: post #71

Earlier quoted context omitted.

If you get the cash immediately, then you still buy the stock on the market if you expect it to go up. If the cash also comes on a vesting schedule, if you expect the stock to go up, you could buy call options on the market with expiries that match the original schedule, at the current strike price. Of course this has much more friction and some cost.

Right, but the stocks start earning value immediately and cash bonuses do not. Assuming gains are even at 5% per year, and the bonus is $100k (because the math is easier): With RSU's, you get $400k 1.05^4 (4 years of compounded growth) With cash, assuming you immediately invest the money, you get $100k 1.05^4 + $100k 1.05^3 + $100k 1.05^2 + $100k *1.05 Running those numbers, the RSU's are worth $486,202 at the end an…

Yes, that's why I suggest you should buy calls on the day your grant would have been assigned if you think the stock will go up.

Of course most people won't do it because is very risky. Yet getting RSUs has similar risk (or larger as you can lose more than the option premium).

There might be US tax implications that I'm not familiar with of course.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#136

Post by [deleted] »

modeless wrote: post #37
tensor wrote: post #28

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 also variable. E.g. if you choose to have 100k of equity each year, each quarter you get whatever amount of units equates to 25k of stock. So what they've done is nearly completely untie compensation from the stock price. You neither benefit significantly nor…

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.

[deleted]

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#137

Post by breput »

AYBABTME wrote: post #86
turtlebits wrote: post #83

Earlier quoted context omitted.

Tech base salaries are so high that it's easy to keep RSUs. Also, IME, within the last ~18+ years it's been extremely beneficial to hang onto them.

There's literally no advantage to hang onto them, versus selling them on vest day and reinvesting in a wide set of tech stocks (if that's what you want to invest into).

I generally agree with selling as soon as possible but there are some significant capital gains tax advantages for holding vested RSUs for a year. 15 to 20% vs. 32 to 37%.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#138

Post by leoqa »

JAlexoid wrote: post #89
modeless wrote: post #72

Earlier quoted context omitted.

If you have RSUs worth 200k per year, standard practice is that you get one grant of 800k at the start of employment, vesting over four years. If you got 200k cash instead, you couldn't buy 800k stock in the first year. That's an extra 600k of upside exposure. If that 600k of extra stock appreciates a lot in the first few years, you are far better off with the RSU grant. If it doesn't, you can quit before it vests an…

That is highly dependent on if the stock appreciates. I remember getting a stock grant at IBM in 2011. Let alone, OP's example is you get all cash equivalent of the full stock grant... not vesting part.

You made a bad bet. Many engineers optimize for high growth 4-year grants above all else.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#139

Post by JimmieMcnulty »

tensor wrote: post #28

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 also variable. E.g. if you choose to have 100k of equity each year, each quarter you get whatever amount of units equates to 25k of stock. So what they've done is nearly completely untie compensation from the stock price. You neither benefit significantly nor…

(One of) the largest retailers in the world also does this, I believe.

Re: Shopify lets staff decide cash-stock pay mix as shares dive

#140

Post by hamburglar »

ulfw wrote: post #108
zachur wrote: post #93

Earlier quoted context omitted.

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.

And when it halves (like it happened to most tech stock over the last year) you get $50K by year 1. If that doubles you finally get your 100K again by year 2.

And yet if you look at most tech stocks that "halved" this year (which, btw, is an overstatement for most), they're still up from 2 years ago. My company's stock is down 25% but my RSUs that vested this year were still worth a hell of a lot more than when they were granted 2,3, or 4 years ago.
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