Technology Industry Switches to Cash From Stock Awards

 

"After years of enticing employees with large stock awards and surging share prices, some technology companies are deploying a time-tested tool: cash.

Alphabet Inc., which owns Google, adopted a new cash bonus plan in October that lets the company give employees bonuses of nearly any size for nearly any reason. Amazon.com Inc. said this month it doubled its cash-pay cap for employees. Some cryptocurrency and nonfungible-token startups are offering pay packages with larger cash components than long-established tech companies in the hunt for workers, according to some tech recruiters.

Employers' recent changes to compensation have been fueled by a desire to blunt attrition amid labor-market upheaval caused by employees re-evaluating their careers after two years spent working from home, recruiters and compensation consultants said. Inflation and the stock market's volatility have also led staff to re-evaluate their appetite for risk and preference for cash.

Tech companies have long competed to siphon engineering and software programming talent from universities and smaller companies. These companies are increasingly attempting to hire away one another's top employees. For example, Meta Platforms Inc., the parent of Facebook, has increased efforts to hire experienced staff in alternate-reality tech, adding pressure on rivals to increase pay.

Engineers are frequently telling their bosses that they are exploring their options or have received an offer to work elsewhere, said Sherveen Mashayekhi, chief executive officer of Free Agency, a firm that advises tech employees on career transitions.

"Bosses who usually leave this to HR or recruiters are panicked, saying, 'A lot of my team is in a job search,'" Mr. Mashayekhi said.

As cash compensation looms larger, some companies are increasing the size of merit-raise pools to 4% of payroll from a typical level of 3%, said Robin Ferracone, founder of compensation consulting firm Farient Advisors.

A 2017 tax-law change could also lead companies to broaden their bonus plans, dropping performance criteria that no longer bring the tax breaks they used to, said Steven Hall, managing director of compensation consulting firm Steven Hall & Partners.

Typically, tech companies pay junior to midlevel engineers equity that ranges in value from 30% to 100% of their salary, according to tech recruiters. Managers and senior-level staff can receive annual stock awards valued from two to six times their salary.

Some senior engineers are seeing compensation offers that are roughly a third higher than pre-pandemic levels -- for example, a cash salary of $250,000 with a $50,000 signing bonus and an additional $100,000 in restricted stock, recruiters said. Some companies are also halving the number of years required to be considered a senior engineer to roughly four or five years, giving younger workers a chance to increase earnings, they added.

For more than a decade, Google has paid junior engineers performance-based cash bonuses of 15% to 20% of their salary, while senior engineers were eligible for more than 25% of their salary, former employees said.

Alphabet's new cash bonus plan, effective Oct. 19, can be used to reward any employee who isn't eligible for sales bonuses, according to a securities filing. The plan lets the company calculate bonuses with different formulas.

Two earlier plans at Google, dating to 2006 and 2007, capped bonuses for individuals in at least some years at $3 million and $6 million, respectively, and gave the company discretion only to lower or eliminate awards. The same plans, which were designated as bonus plans for executives or senior executives, also included company performance targets such as revenue, operating profit and total shareholder return.

Top executives at Google, including Alphabet Chief Executive Sundar Pichai, haven't received cash bonuses or incentive pay in recent years, the company's annual proxy statements show. The company last year reported paying Mr. Pichai $2 million in salary and $5.4 million in security benefits. In 2020, it paid him $277 million in equity and $65,000 in salary.

An Alphabet spokeswoman declined to comment on the change to its bonus plan but said the company pays salaries at the top of the market wherever it operates.

The flexibility Google sought for cash bonuses could speak to the changes being wrought by cryptocurrency startups, Mr. Mashayekhi said. Crypto companies have sought to lure several of his clients away from major tech companies by offering a third more in cash compensation. Other recruiters said venture-backed startups also have sweetened offers with richer cash payouts than established players.

Amazon said in an internal blog post this month that it would raise its cap on base pay -- which most commonly consists of salary, paid in cash -- to $350,000 from $160,000. It also said it would raise compensation ranges for most jobs, citing a "need to remain competitive for attracting and retaining top talent."

Amazon, which declined to comment on the move, relies on stock-based compensation to recruit and retain white-collar and management employees. The cap also means some new hires had to weigh a cut in salary to join the company and assess the prospects of gains in Amazon shares." [1]

1.  Technology Industry Switches to Cash From Stock Awards
Francis, Theo; Mickle, Tripp. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 Feb 2022: B.1.