So even if it's an honest miscommunication, it's still a painful one.
"Salary: $180k. RSUs: $80k (100 shares)"
VS
"Salary: $180k. RSUs: $80k"
With the former, I can easily spot check the share price and make sure it's correct. With the latter, I cannot, and take it at face value.
That's exactly why the notice should (and usually does) state both the RSU # and the present $ value while also indicating that it is the present value.
But the point that’s being made (as I understand it) is that certain companies, including Amazon, first decide on a dollar value, notify the employee of that value, and then later grant the commensurate number of stock units based on the price at that later time.
There are several events that happen with refreshers/bonus:
1) Notification period 2) Granting period 3) Vesting period
When the notification period happens, the manager doesn't say "You are getting X units of stock". The compensation system actually at this point has zero idea how many units of stock you are getting. Instead you get told "you are getting $x worth of stock".
Then there's the granting period, in which those unvested stock units are actually granted to you.
This is important because there's a lag time between the notification period and the granting period. If your boss tells you you are getting $10k worth of stock and the stock price is $100 per share at the notification period, but is $105 per share at the granting period, you are granted 95-ish stock units instead of 100, because the number of stock units granted was based on the Dollar amount they communicated to you.
I've never heard of RSU grants that might vary with market price where the person did not know 1) That any $ amount quoted was based on the current market price of the stock; 2) The actual # of RSUs being granted; 3) That when they vested their value would be dependent on the stock value at that time.
I know sometimes grants are made in the fashion of "10% of your base salary". But whenever the grant value might vary with market price I'd be very surprised if the actual # of RSU's was not information available to the employees. Even if the company dropped the ball in a compensation notice & didn't explicitly state the # of RSU's, that is still information that would almost definitely be included within the employee's compensation section in the company's HR portal.
For example, my company unlocked annual amounts on August 15th and I was told I was getting $56k worth of stock. The stock was granted into my account on August 31st.
My stock at grant time was exactly Units * Price on August 31st = $56k. If I was granted stock when the annual amounts were announced (August 15th) the same number of stock would have been worth ~$62k
If you get 100k USD worth of RSUs on start date, and the stock value goes up 10X you still have a lot of skin in the game.
If the stock goes up 10x in 4 years, then your grant on year 4 is still 100k, not 10x that.
You’re not compensated by “You’re getting $20,000 in however many RSUs that can buy at the time”. It’s “you’re getting 100 RSUs” and then whenever you get them your compensation letter states their current $ value.
In my company this is exactly how it works.
Bonus is X% of salary and the exact number of RSUs and SARs is floating until the time they are granted.
Everyone hopes the market has a bad day when the bonus is granted.
I assumed this is how it works at all large companies.
1. The market price of the stock is determined at the time of the grant, and; 2. The market price of the stock is determined at the time the RSUs vest.
If there’s a one-time grant that is given immediately, the two values are usually going to be very close. But if the grant vests over some number of years (e.g. four year schedule, 25% vests after one year, remaining 75% vests monthly), the difference between the two methods can differ greatly.
When the price is determined at grant time, employees benefit from the stock rising, and are penalized if the stock falls. When the price is determined at vesting time, employees end up with the same compensation no matter what the stock does, they only benefit from appreciation if they hold the stock and it appreciates after vesting.
In your company, do the bonus RSUs have a vesting schedule? Or are they granted and distributed shortly thereafter?
1) Find out RSU bonus value: "you get 20% of your salary worth of RSUs"
2) Grant Date: Company Calculates the number of RSUs, issues them, and starts Vesting schedule.
3) Vesting days: Some of the RSUs become vested and can be sold by the employee.
>The market price of the stock is determined at the time the RSUs vest.
What is the point of giving stock priced on the vesting day? It has no chance to go up or down between the grant and vesting date when it is sellable.
It would be the same as a cash bonus with an X year delay.
An excellent question, somewhat epitomized by the late Mitch Hedberg’s joke: “I think a gift certificate is a bad gift. You take money that is good everywhere…” Same here, it’s no better than cash, only it’s a PITA to convert it to cash if you want cash.
That being said, there are a few scenarios I have seen that fit the pattern:
1. Some companies have an ESPP program where some cash is deducted from each pay and placed in escrow. At regular intervals, the accumulated money is turned into shares at market value, and the employee receives the shares. There is usually a modest discount involved, e.g. 15%. If the employee sells the day the shares vest, they harvest 15% of the value less taxes. Or the employee can HODL, as they see fit.
Even without a discount, some employees may prefer an ESPP to making their own investments in the company stock. There is the convenience of having the money deducted at source, many people find that an easier way to save than relying on discipline.
2. The company is cash-poor and pays some comp in stock because they have shares in their treasury. One can understand why some companies would want to do this, without agreeing that employees would prefer this to cash.
The only technicality is whether they're "subject to forfeiture" in which case you pay the tax after 5 years, or not, in which case you pay the tax upon vesting.
But no matter what you're always paying income tax. You may not be as aware of it though, since the company that grants you the RSU's will generally sell a portion of them in order to cover your taxes before you even receive them. (That is standard in the US too -- e.g. 50 units vest but only ~32 show up in your brokerage account.)
I think the advantage for company is somewhat better predictability?
The entire point of RSU's (or stock options) is that if the company increases in value over time, e.g. over your first year, so does the cash value of your RSU's. That employees benefit as the company benefits.
What you're describing is zero benefit at all. It's no different from just being granted cash that vests. It's such a strange and seemingly pointless thing to do, that I have to ask -- are you sure that's how it works? And if so, has someone from the company ever explained why they do that?
edit: That setup is basically saying "you don't benefit from the increase in share value for the first year of employement", which is pretty employee-hostile. I bet a company that was doing this before stopped doing it this year, when their stock value fell by a lot. :)
However, in offer paperwork, it will sometimes be stated as a dollar value. This is for two reasons: the first is that RSUs need to be approved by the board at a meeting, which can happen some time after the hire date, at which time the dollar value is converted into shares.
But the main reason is that it makes it easier for the candidate to understand the value of the RSUs, and lets the company then talk about the total compensation and try to treat RSUs like cash in that discussion.
My well known company has always granted stocks based on dollar value. Many employees incorrectly thought it was "number of shares", but if anyone actually asked the manager who decided how many shares they would get, the answer was always "We're given a dollar budget in shares to allocate amongst our reports - the system then converts that dollar amount into shares based on the stock price at the time."
So if our company has always done it this way, I suspect many others also do it this way.
I get a manager could be told “you have $500k of 4 year grants to give out this year”. He tells an employee “you’re getting a $100k 4 year grant.” Stock is $100 today, so that’s 1,000 shares, or 250 per year.
A year passes. Stock goes to $50. Here’s my big question: Are they still getting 250 shares this year from that grant (now with a value of $12,500) or are they getting $25,000 which is now 500 shares?
The first one is what I mean by it being set in stock and it’s the only thing I’ve seen. I get that it was calculated in dollars at the beginning, for budgeting purposes.
Something in between is what I think Coinbase and Stripe are doing, which is 1 year grants. I think they’re still frozen to number of shares at the beginning of the year (even if it’s calculated in dollars).
Offer letters having dollar values for the share grant at the time is normalish.