- Uber has started a pilot program that lets new hires unlock more of their equity faster.
- Google, Stripe, and other tech companies are rethinking compensation, too.
- “There are some companies moving very boldly on this,” one expert said.
- See more stories on Insider’s business page.
In recent months, some job candidates receiving offers from Uber have had a pleasant surprise: They’d be taking home an awful lot of money in their first year. That’s because the ride-hailing company is trying out a new compensation model that gives employees more of their equity upfront.
Uber isn’t the only one. Google, Stripe, Coinbase, and Lyft have all introduced new equity schedules that let employees unlock more of their equity grants sooner.
In Silicon Valley’s fight for talent, restricted stock units, which “unlock” over a set period of time, have long been viewed as an effective tool to retain talent. Traditionally, many of the large tech companies, such as Apple, Uber and Microsoft, have offered four-year vesting periods where equity is unlocked at 25% a year.
But some firms are now either shortening the vesting period or tipping the balance in a way that lets employees get hold of their stock grants sooner – a system known as front-loading.
“It is a trend, and I see it almost exclusively in tech,” Rob James, a principal with Pearl Meyer who consults with tech companies on compensation matters, said. “It’s an employee-friendly environment at this moment in time. In order to be competitive and sweeten the deal for employees, they need to front-load a little bit so you get more sooner.”
Google introduced a model for new hires in May that pays out two-thirds of the initial equity grant in the first two years, Insider previously reported.
Uber has started testing a similar model for some of its new tech hires in the US, according to a person familiar with the matter and multiple people who have received offers from the company in recent months. An Uber spokesperson declined to comment.
Some companies are making even bigger changes. In April, The Information reported that Stripe and Lyft had moved to models where everything vests in the first year. Spokespeople for the companies did not respond to Insider’s requests for comment.
In these instances, the one-year grant is typically smaller overall than an equity package that vests over several years. Employees are then offered additional stock grants beyond the first year, however these may be tied to performance.
James said he had consulted with several companies that moved to the one-year model. He added that some were moving cautiously.
“Everyone is waiting to see who the first mover is,” he said. “It flies in the face of the traditional thinking around retention and what equity is intended to do.”
Patrick Moloney, a tech-compensation advisor at Willis Towers Watson, told Insider that there was “a little bit of experimentation” happening in compensation right now.
“There are some companies moving very boldly on this, but most are being careful,” he said. “Boards are not always as convinced as others that this is a good idea.”
The end of ‘rest and vest’?
Sujan Rajbhandary, a vice president at the advisory firm Mercer Capital, said he chalked the changes up to two things: “the competition for talent across the board and a little bit of experimentation.”
A boom in remote work, accelerated by the COVID-19 pandemic, is also making it easier for employees to leave companies, Pearl Meyer’s James added.
Speeding up equity payouts can have upsides for both employers and employees, experts told Insider. Companies gain more control over the stock grants they’re offering, and lets them tie further stock awards to performance. It can also make job offers look more appealing than those of competitors.
Meanwhile, employees may not be as likely to sit around and do nothing in a job they dislike just to wait for their equity to vest – a Silicon Valley phenomenon known as “rest and vest.”
“The thinking has been turned on its head, from, ‘We want everybody to stay in their seats,’ to, ‘We don’t want to put handcuffs on you so you’re sitting around,'” James said. “If you’re not committed, take the money and go.”
Coinbase acknowledged as much in May when it announced it was moving to one-year grants as part of a larger overhaul of its approach to compensation.
“Some may say eliminating 4-year new hire grants could hurt retention; we disagree,” Coinbase Chief People Officer L.J. Brock wrote. “We don’t want employees to feel locked in at Coinbase based on grants awarded 3 or 4 years prior.”
Some employees are skeptical and see the new approach to equity as a way for employers to give the illusion of a better job offer, while limiting the longer-term cost. Employees who take front-loaded offers at companies where the stock is rising risk missing out on bigger payouts down the road.
On Blind, an anonymous chat app for professionals, numerous fiery debates have raged over whether these new models are good for employees.
“Getting money sooner is always better than getting the same money later,” one person wrote in a recent thread on the topic. Another said: “Front loaded vest is the way to go. Get your money up front. Get refreshers or you bounce.”
But others aren’t so sure. “This is a common tactic by employers: obscure the net result (less money for you) by dangling an unimportant carrot (higher first year total compensation),” someone else said.