This is "one of the biggest stories of the year for tech employees and it's going largely unnoticed," according to Zaheer Mohiuddin, cofounder of Levels.fyi, which helps Silicon Valley workers assess compensation offers.
He's talking about front-loaded equity vesting schedules, which are spreading through the industry and threaten the longstanding practice of "rest and vest."
Traditionally, employees could count on steady equity payouts regardless of their ongoing performance, which sometimes incentivized people to coast after securing their stock grants.
Under a new approach, equity is weighted heavily toward the first year or two, such as 40% in year one, 30% in year two, then tapering down in later years. After that, compensation relies much more on annual performance-based refreshers, according to a recent analysis from Levels.fyi. Here are some examples:
This shift ties long-term pay more closely to individual output and company performance. High achievers may see their equity compounding significantly, but those who underperform risk diminished payouts.
That's because in their second, third, and fourth years, there's a lot more riding on a fresh assessment of tech workers' performance. If they've underperformed, managers can decide to give them less equity in their annual refresh. This cuts the likelihood of staff coasting, especially in years three and four.
The move reflects a broader philosophical change: Silicon Valley is pushing employees to perform better and work harder. Companies such as Nvidia, Airbnb, and Google have already embraced versions of front-loading, Levels.fyi has found. We wrote about this back in 2021, but this practice has been spreading lately and could become the new norm in tech.
For employees, this means some of the security of automatic equity vesting is gone. To sustain competitive pay, they must consistently deliver results and navigate how their company handles annual equity refreshers. The era when tech workers could coast on generous stock packages, that "rest and vest" experience, may truly be over.
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