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 utility for people to rise economically.
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 and try again at a different company, you're not locked in.
It's also an extra 600k of downside exposure.
This kind of up-front grant is a wonderful asymmetric bet. You get $600K skin in the game on day 1. If the stock goes up 20% you get a 20% gain on the whole amount before you even own it. If it goes down materially, you're welcome to quit - but more often what happens is actually the company issues a refresh grant to make up for it - since they don't want you to quit. If it goes back up you now have a ton more stock on the way back up.
You get to earn appreciation on the whole amount before you earn it so up to 4 years early. You have nothing of your own at risk except your time. Things go well, you can do amazingly well. If things go bad, you lost a year or two and you can wander down the street for another lotto ticket.
We were in an unprecedented bull run for tech stocks for a decade plus. No guarantee that continues. Markets are anti-inductive and past performance is no guarantee of future results.
Again, usually it works out.
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.
I'm not sure I follow that. If you're getting those shares instead of a higher salary, there's no effective difference between that and a cost you paid out of pocket (except for certain tax implications).
That said, legally, even in the specific case of the Shopify plan, you aren't taking cash and spending it on Shopify stock. If you were, your tax situation would be more complicated.
You do, it just isn't spelled out. If you're getting comp in one way (RSUs), then you're not getting it in other ways (salary). The same is true of other benefits, like free food, 401k contributions, etc. It generally isn't a 1-to-1 thing, but it _is_ a tradeoff.
I guess that's the monkey-paw side of "incentivizing the employees to make the company perform by giving them a stake in the upside"...
I am clearly working at the wrong company.
200K seems pretty average for a senior engineer role (i.e. a 'terminal' role, not an up-or-out junior role) in the Bay Area on top of a 150-200K base.
Put another way, 200k in RSUs at an early stage company might be worth 100x or even more at IPO or acquisition years down the line. If you were to take that same 200k in cash and invest it in other ways you might be able to have the same return, but it's unlikely.
There are a lot of factors that affect this, but ultimately the potential return is something that start up employees can find attractive. These potential returns are also the underpinning financial motivator for Venture Capital.
Identifying a company that is going to return 10000% is difficult. However, identifying a company that is going to return 10000% _and_ getting a job there is also difficult.
If you can do the first part, you're already working on sand hill road.
If you had $200k in yearly cash compensation from Apple starting in 2019 then you'd make $200k this year.
If you had $200k in yearly RSU compensation from Apple starting in 2019 then you'd make $800k this year.
Part of the power of RSU packages is that is equivalent to a very large stock purchase that is a multiple of your earning power that you earn out of over time.
So yes, if you have a lot of liquid capital, taking a $200K/yr stock package from Apple in 2019 is "equivalent" to putting $800K into AAPL all at once. The trick is that more people can do the former than the latter.
If you got cash then you'd have made $200k the first year, $200k the second and $200k the third.
If you got RSUs then you'd have made $350k the first year, $660k the second and $800k the third.
If you got cash then you'd have made $400k the first year, $400k the second and $400k the third.
If you got RSUs then you'd have made $550k the first year, $860k the second and $1000k the third.
First year make 400k, buy 200k worth of something that is not just one egg basket. But because it's salary you do that every ~2 weeks so you end up with hopefully more than 200k by end of year already too. Continue example over the other 3 years.
Yes the upside is smaller as I would assume the broader market part would return less in the upside case. The point is that your downside is 'better'. Instead of your tech stock tanking over proportionally you'd be down less or be even or could decide to stay in cash mid year as markets tank and interest rises or buy something else like a house. It basically allows for better 'control' and a less bad worst case at the cost of being able to 'win the lottery'.
Of course you are right that just buying one stock, even if not your own company from the cash is actually worse overall. If you were gonna do that, just get the RSUs.
RSUs have downsides. That was never in question in this thread (as much as people keep affirming it).
RSUs also have financial upside over the equivalent amount of cash. That's the thing people keep trying to explain but also seems to get brushed off.
$100k cash and $200k RSUs per year in a stock that increases by 10% each year: after 4 years I have $400k cash and $1.171mm in stock.
$100k cash and $200k cash given to me at the beginning of the year to buy the same stock for 4 years: $400k cash and $1.021mm in stock.
They're just not the same. RSUs have leverage. They have upside and downside.
For a less sky rockety company that still offers RSUs I would take my chances with the cash and actually ending up in a better boat.
That also means the risk of RSUs is also not as high as you paint it out since you don't keep them for 4 years. After the 1 year cliff you can sell them as they vest. So you're only risking future money rather than money you've already gotten. Unless the stock goes below the original stock price then you're still ahead. If it does then you either get a top up or find a new job.
No you couldn't.
You'd have to put in several years of 200k of cash up front to end up in the same boat.
And that's not even accounting for evergreen option grants and bonuses.
It’s best to value the options at $0 and consider them a lottery ticket.
The company is very transparent with the numbers, though. Every month we have an all-hands meeting and the CEO goes over numbers, including current ARR, burn rate, balance, and runway.
We received a $75M Series C in May, and in our last fiscal year we 4X'd our ARR. We're doing pretty well.
When things go badly, or even just not well, it doesn't matter what your plan was or how transparent everything is - the founders/board may be staring down a choice between folding the company up or decimating the equity of everyone currently holding it. It's a pretty easy decision usually. The good ones will take it on the nose with everyone else, the others ... well they aren't taking the same hit.
Edit: added “over 4 years”
Oh... also... "Tax Man 22" - RSU grants are taxed at the time they vest. So if your 20000 RSUs vest at $100, then you pay regular income tax on $100... not lower capital gains tax on the $90 per RSU.
Just the tax benefit is higher on cash, than RSU.
The number of people in this thread who don't understand RSU grants at all is kind of shocking.
You're granted $800k of RSUs up front at the current stock price, 25% percent vests every year. That is VERY different than buying 200k of stock every year because the 800k is all granted at the INITIAL price, whereas buying 200k every year buys stock at the CURRENT price.
If you could take 200k cash every year and then time travel back to the start of the period with it and buy the stock, THAT would be equivalent to RSUs.
In the rather special case that stock price is monotonically increasing, there is an obvious benefit to locking in the earliest price you can.
On the other hand, if you have more cash every paycheck, you can trickle it into other potentially high growth companies and spread your risk. And you don't lose anything by leaving on a date you choose. And, as shopify has recently demonstrated, being locked into last years price could mean you lose a lot.
We've just left an extraordinary period of growth for tech stocks, but it won't always be that way.
That's a separate issue from the common misconception in this thread that cash is the same as RSUs.
RSUs have more risk than cash, and more potential upside. They are unambiguously different.
What are you replying to? That you cannot buy the stock? Because that is demonstrably false.
> If you could take 200k cash every year and then time travel back to the start of the period with it and buy the stock, THAT would be equivalent to RSUs.
Except that's not what the OP wrote.
> The number of people in this thread who don't understand RSU grants at all is kind of shocking.
Let me rephrase you - The number of people, yourself included, who are completely ignoring what the OP wrote to just rant about RSUs and seem more intelligent is... not shocking at all.
Note that this is still catastrophic in terms of diversification. And you can compare job change costs directly to how much paying for this option would cost.
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.