Amazon, Apple, Google: Restricted Stock Grants Evolve To Retain Top Talent
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February 16, 2022 | Forbes
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Thanks to Bruce Brumberg, JD
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Competition for top employee talent among corporate rivals and tech startups, along with the stock market decline, is leading some big tech companies to make changes in their stock grants. The goal is to make their equity awards more effective for recruiting, retaining, and motivating employees. While grants at these tech giants are still more likely to be restricted stock units (RSUs) than the stock options that can be wealth-builders at startups, features of their new grants are evolving.
Amazon
Amazon caps salaries for white-collar workers at a specified amount and then adds in stock grants that gradually vest in “steadily increasing chunks” over four years. In response to the tight labor market, the company just announced that it plans to more than double its cap on base salary, from $160,000 to $350,000 per year. According to an article from GeekWire, Amazon also stated that it will start making stock grants to employees when they are promoted, instead of waiting until the next annual grant cycle. Amazon’s announcement says the purpose is “to better align newly promoted employees with the compensation range of their new level.”
Further changes may also be coming in Amazon’s stock grant practices. Amazon’s RSUs currently vest 5% after the first year, 15% after the second, and then 20% every six months for the remaining two years. This is a backend-loaded vesting schedule. An article from Business Insider reveals that Amazon Web Services is considering a shift to a monthly vesting schedule for employees at Level 7 (principal) or higher and for approximately 15% of employees with a “top tier” annual performance review rating (see Amazon Considers Changing How It Distributes Employee Stock Options To Stem Exodus Of Top Talent).
Another article from Business Insider discloses an internal company memo stating that Amazon will allow employees to take longer leaves of absence before pausing their RSU vesting (Amazon Changes Employee Stock Distribution Policies After Exodus Of Top Talent And Complaints Of Slow Vesting Period). Previously, Amazon paused vesting for leaves of longer than two weeks for any reason, which is not a common practice. The Bloomberg article cited above adds that the company will now let vesting continue during parental leave and for up to 26 weeks of medical leave. Amazon will now also give employees the choice to trade fractional shares, and when an employee dies it will accelerate the vesting schedules for beneficiaries.
Apple
Apple has informed certain high-performing engineers (10%–20% in some divisions) that they will receive out-of-cycle RSU grants that vest over four years, according to a short news article from Fortune (Apple Is Doling Out Bonuses Up To $180,000 To Retain Top Employees). These grants are seen as a retention incentive to prevent defections to tech rivals. The grant values range from $50,000 to $180,000, with both the size and timing being atypical and surprising, the article claims.
The article also touches on the downside of these out-of-cycle types of grants, which are different than regular annual grants. They “irked” some engineers who didn’t get them and saw the selection process as arbitrary. Some grants equaled the annual stock grant normally given only to engineering managers.
Separately, Apple’s CEO received a new performance-based vesting RSU grant (performance stock units, or PSUs) on the 10th anniversary of his promotion to that position. See pages 44 and 50–52 of Apple’s definitive proxy statement filed with the SEC for his grant and others to executives, and also an article from MarketWatch (Apple CEO Tim Cook’s Compensation Rises To Nearly $100 Million Thanks To New Stock Award). These pay out stock based on the relative performance of Apple’s total shareholder return compared to companies in the S&P 500. For example, if Apple ranks in the 85th percentile of companies in the S&P 500 for the performance period, 200% of the target number of RSUs vest. For an explanation of the difference between time-based vesting RSUs, which were also granted at the same time to these Apple executives, and PSUs, see an FAQ on the website myStockOptions.com.
Alphabet/Google
Alphabet, the parent company of Google, is similarly finding the need to make larger grants to retain its top talent—see, for example, an article from CNBC, Alphabet Grants Tens Of Millions Of Dollars In Stock Awards To Top Execs. As detailed in Alphabet’s 8-K filing with the SEC on new compensation packages for four senior executives, including the CFO and the chief legal officer, each executive received stock awards valued between $23 million and $35 million, split between performance-based and time-based vesting RSUs.
The performance-based RSUs will vest from 2022 to 2024 according to total shareholder return (TSR) relative to companies in the S&P 100. The number of PSUs that vest will range from 0% to 200% of the target grant size. The time-based RSUs will vest quarterly in 12 installments, assuming continued employment at the company.
Business Insider reports that for all of its employees globally, Google has shifted to more front-loaded vesting for its RSU grants. Its RSUs used to vest evenly over four years (25% yearly). Now they vest 33% per year for the first two years, 22% in the third year, and 12% in the fourth. In comparison, most startup and pre-IPO companies tend to use a four-year vesting design in which 25% of the grant vests at the one-year mark, then monthly for the remaining term of continued employment (36 monthly vests after one-year cliff vest). I predict that more public companies will be tweaking their vesting schedules in various ways, including moving away from annual vesting to quarterly or monthly.
Underwater Stock Options
With stock markets in decline at the start of 2022 and IPOs underperforming, concerns about underwater stock options have resurfaced. Martin Peers, New York bureau chief and columnist at The Information, recently expressed both good news and bad news about the volatility. The good news? Grants made early this year will have “lots of upside.” The bad news? Last year’s grants. Even with RSU grants that do not technically go underwater (unless the stock price falls to $0), the value of grants at some companies has been substantially sliced.
According to Peers, the big decline in tech stocks will have a widespread impact on employee compensation, and companies will need to address that in the upcoming months. He also wonders whether companies will take steps to make up for what employees lost by “beefing up” new grants to increase employee retention.
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