As I mentioned in last Friday’s post, I had interviews for a new job. The interviews went very well. They liked me; I liked the company and the job. After the interviews, the hiring manager gave a verbal go-ahead. Now I’m handed off to HR to talk about the compensation package.
This turned out to be a good exercise to take an inventory of my current compensation. My unvested RSUs became a point of discussion. I come to realize how strongly these to-be-vested RSUs act as golden handcuffs.
RSUs are Restricted Stock Units. They are basically a deferred bonus calculated and paid in shares of the employer’s stock. Unlike a cash bonus, you don’t get it right away. They become yours ("vest", "lapse" or "released") over a number of years. Mine vest 25% each year over 4 years.
When you first get the RSUs, it’s not that big a deal. After you divide the value by 4, it comes out to just a few percentage of your salary.
It gets a little better by the end of the second year. Even if you sell the shares as soon as the RSUs vest, which you should, because there is no tax advantage to hold them, you still get 1/4 of the RSUs granted at the beginning of the first year, plus 1/4 of the RSUs granted at the beginning of the second year. That’s double the value from the previous year.
Things get really interesting by the end of the 4th year. You are collecting 1/4 from each lot granted in the previous years, for the full value of the annual grant. This continues as each year goes by, as shown in the chart below:
I looked at my pay history. My current employer granted on average about 20% of my salary in RSUs each year. I already worked here for more than 4 years. Each year I get about 20% of my salary from the RSUs becoming vested. I’m only paid this money now for the work I already did in the previous years.
It’s very hard to walk away from this. If I leave now, even if the new employer also grants the same amount in RSUs, which it doesn’t, I will have to restart the cycle, collecting 1/4 in the first year, 1/2 in the second year, 3/4 in the third year, versus the full amount every year. Basically I will lose 1-1/2 times the value of the annual grant over a 3-year period. To me, that’s a 10% pay cut for 3 years.
I like the new job, but I’m not that desperate for a pay cut. I may end up turning down this new job.
Do you get RSUs at your job? What percentage of your base salary is the annual grant worth? Have you been in a situation like this? What do prospective employers do to unlock the golden handcuffs?
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