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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

#141

Post by sulam »

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.

While I would avoid trying to time the market, anyone starting now has a much lower "cost basis" (they're not spending money, it's not a cost) and better chance at their RSUs appreciating while they vest. Using the last 12 months as a guide for the next 4 years isn't a reasonable way to analyze this.

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

#142

Post by leoqa »

3bproblem wrote: post #119
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…

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-progr... ). You can also argue that it's not good for employee…

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.

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

#143

Post by nahname »

modeless wrote: post #106
nahname wrote: post #76

Earlier quoted context omitted.

An ESPP is directing earned cash into stock. You buy the stock at time of payment. This is directing equity into RSUs or ISOs at the open of the window. You will be subject to price fluctuations over the window, which you wouldn't be with an ESPP.

The window being one quarter? That still makes this more similar in practice to an ESPP than a standard four year RSU grant.

Yes, this would be for one quarter. I also agree it is quite similar to an ESPP, especially for the majority of people. I doubt many would be willing to allocate 80-90% of their total comp to ISOs.

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

#144

Post by sokoloff »

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…

You have to use two ** to "escape" the italicizing that happens with multiple single * in your post.

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

#145

Post by hamburglar »

MikeTheRocker wrote: post #60
kodah wrote: post #50

Earlier quoted context omitted.

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 util…

I don't understand how it could be preferable to be paid in public equity you could otherwise buy with cash

It's a matter of the difference between when they are granted versus when you receive them. If I tell you I'm going to give you $100k cash in 4 years, that's wildly different from if I tell you that in 4 years I'm going to give you stock purchased at today's price for $100k. Yes, the upside relies on the stock going up, but that upside can change things quite a bit.

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

#146

Post by ryanwaggoner »

breput wrote: post #137
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).

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%.

They’re taxed as ordinary income when they vest, and only gains and losses from that point are considered capital gains or losses. And your cost basis is the value they vest at, so it’s no different than getting cash and buying those shares immediately. No special advantage to holding for a year vs any other stock you acquire with cash.

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

#148

Post by sokoloff »

Vvector wrote: post #47
londons_explore wrote: post #34

Earlier quoted context omitted.

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?

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.

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://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.

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

#149

Post by kgwgk »

zibby8 wrote: post #68
mjr00 wrote: post #45

Earlier quoted context omitted.

For the tech sector it's really been more like the last 22 years. There hasn't been an extended downturn in US tech stock since the original dot-com bubble. The 2008 recession ended up being a 1-2 year blip. The COVID contraction was extremely brief. By comparison, if you invested in the NASDAQ in 1999/2000, you'd need to wait 12-14 years to break even. I don't have a crystal ball, of course, but to me things are loo…

But did the bubble already burst in tech? Valuations are very low right now. I don't think we're necessarily at the bottom yet, but I think the worst has already come to pass.

> Valuations are very low right now.

Very low compared to what?

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

#150

Post by medvezhenok »

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.

I think the point is that RSUs are preferable if the stock goes up, and cash is preferable if the stock goes down. If the stock stays flat, there is no difference between RSU/cash split.

I think most people's assumption that the market will go up over time so most people would prefer RSUs. How accurate that assumption is in the short-medium term remains to be seen.

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