I have a friend who has been working their way up the company ranks. For an upcoming promotion, they were initially offered an option of $20K annual pay increase or $60K stock compensation (EDIT: It's per year), or something in-between (e.g. $10K cash and $30K stock). They also have to retain the stocks for about a year (e.g. stock paid out in the first year can't be sold until the second year).
The catch is the publicly listed corporation they're working at has been struggling in the stock market for the past few years and there are no signs of any recovery in the near future (rising oil and commodity prices are likely to hit the company hard). Two rounds of layoffs already happened, cutting over 5% of the workforce. Bankruptcy is unlikely, but there's nothing stopping further major stock selloffs and layoffs. My friend did point out that issue to try to negotiate for a larger stock compensation, but they're not sure what ratio should they aim for.
In terms of their finances, they are doing well and could easily do without the $20K pay increase. About half of what they earn goes into automatic index fund investments. In the past they have utilized SBLOCs with their index fund portfolio as collateral to pay for big items without selling any of their ETFs to avoid capital tax gains.
(US) A friend asked me for advice on pay increase negotiation. Employer is offering stock compensation over cash for promotion.
byu/horsebatterystaple0 inpersonalfinance
Posted by horsebatterystaple0
5 Comments
Pay increases are for the length of employment, whereas a stock grant is one time.
So if he works there at least another 4 years (and as far as the employer is concerned, of course he wants to work there at least another four years!), the pay is worth more.
So negotiate as big of a raise as he can, but that’s about his replacement cost, performance and value to the company. The company doesn’t care about anything else.
Whatever it is though, the pay is the right call.
i’d take more cash, since your paycheck is already tied to the company and the stock adds extra risk.
Is that a one-time, $60k grants? Or $60k per year for some number of years. It sounds like effectively a 2 year vesting period?
Lots of questions.
What’s the vesting schedule? Is it something like $240k/4 years? Or just $60k/1 year? Is it public stock or private? RSUs vs options?
Why can they only sell after one year?
How long does your friend anticipate being there?
Without knowing these, it’s hard to say. I’d probably suggest taking the stocks here but it depends on the answers to the above.
RSUs are generally meant to keep an employee from leaving while their stocks vest fully. However, if fired or laid off – unvested stocks are forfeited back to the company.
I could see this being a strategy to get friend to do more work for no extra pay if he’s laid off before his year of vesting is up.