Stock Based Comp Thoughts & Questions
I would say in the technology sector, it's fair to call this cycle a crash given 2022 performance, which doesn't spare some of the largest, most well-known companies in the world.
For most employees under 40 who work in tech, this is the first time they've seen significant wealth destruction given today's prevalence of stock based compensation. The last 12 months has been hard enough owning a diversified portfolio, let alone being overly concentrated in employer stock. It's been an interesting environment to plan in, and I'm genuinely curious how the masses are thinking about things moving forward.
- How many employees treated variable stock based compensation more like straight line compensation, assuming limited volatility and a floor on the stock price that didn't exist in retrospect? I.e. how much has variable stock compensation gone to paying mortgages, car payments, bills etc?
- Do both employers and employees rethink compensation structures moving forward? Do more flexible compensation plans arise that provide the employee choice as to how much variable compensation they can tolerate? How many employees are rethinking tolerance of variable comp after now experiencing a full market cycle?
- Entrepreneurs risk, and sometimes lose it all. I get the feeling that many employees thought of themselves as entrepreneurs in 2020/21 and now realize that they'd rather be an employee seeking a paycheck, diversifying away from employer stock at every opportunity available. A hybrid approach is probably appropriate for many.
- How many employees are stuck? I.e. the stock is down 80%, so they refuse to sell and diversify out at these levels. Some of these stock prices will never recover 2021 prices, so employees should be looking for planning opportunities in spite of the difficult year.
- How many employees got away from diversifying and overconcentrated at exactly the wrong time? I.e. did the right thing for years to remove concentration risk, but then got caught up in the hype and stopped selling as their company stock price went up straight up after the pandemic. I'm inclined to think many.
- On the flip side, how many employees are panicking at the wrong time? New issuance of stock-based comp in the coming months could be very profitable 3-5 years out.
Above all else, handle hard well. This too, shall pass.
