A pandemic-fueled hiring frenzy, followed by a dramatic stock-market collapse, is piling pressure on the compensation strategies of public tech companies. Engineers and other workers have been wooed in recent years with generous chunks of equity, known as restricted stock units, or RSUs. The awards are often valued based on the market price on the day they're granted.
In the first quarter of 2021, Twitter granted 3.26 million RSUs. During the same period this year, it granted 35.85 million RSUs, a roughly tenfold increase. Other companies, including Snap, Pinterest, Wayfair, Uber, and DoorDash, doubled or even tripled the number of RSUs granted in the same time frame.
"It is completely unsustainable," said Aalap Shah, a managing director at Pearl Meyer who advises companies on compensation plans. "It's really affecting some of the smaller companies, but even some of the larger companies because there always seems to be someone larger or willing to go deeper."
In addition to granting more stock, companies are doing it more frequently, according to Shah of Pearl Meyer, and granting it to more people within the organization. While a smaller company would not normally be expected to offer a yearly "refresher" grant—an additional grant of RSUs after a year of work—now they are. While lower-level nontechnical employees didn't expect to receive RSUs, now they do.
"They're hoping they'll grow through the increased costs, and that is not necessarily happening," Shah said. "We're headed toward a contraction or bust of this."
RSUs and cash for salaries are "finite resources," Shah said, even if companies grant stock in what seems like unlimited amounts. He said he expected a series of "layoffs and adjustments" to come at companies of all sizes.
"Anytime you ask for the most cake you can possibly get, what's going to happen?" Shah said. "You get a stomachache after."