In Silicon Valley’s fight for talent, restricted stock units, which “unlock” over a set period of time, have long been viewed as an effective tool to retain talent. Traditionally, many of the large tech companies have offered four-year vesting periods where equity is unlocked at 25% a year.
But some firms are now either shortening the vesting period or tipping the balance in a way that lets employees get hold of their stock grants sooner—a system known as front-loading.
“It is a trend we see almost exclusively in tech,” Rob James, a principal with Pearl Meyer who consults with tech companies on compensation matters, said. “It’s an employee-friendly environment at this moment in time. In order to be competitive and sweeten the deal for employees, they need to front-load a little bit so you get more sooner.”
In these instances, the one-year grant is typically smaller overall than an equity package that vests over several years. Employees are then offered additional stock grants beyond the first year, however these may be tied to performance.
James said he had consulted with several companies that moved to the one-year model. He added that some were moving cautiously.
“Everyone is waiting to see who the first mover is,” he said. “It flies in the face of the traditional thinking around retention and what equity is intended to do.”
A boom in remote work, accelerated by the COVID-19 pandemic, is also making it easier for employees to leave companies, Pearl Meyer’s James added.
Speeding up equity payouts can have upsides for both employers and employees, experts told Insider. Companies gain more control over the stock grants they’re offering, and lets them tie further stock awards to performance. It can also make job offers look more appealing than those of competitors.
Meanwhile, employees may not be as likely to sit around and do nothing in a job they dislike just to wait for their equity to vest— a Silicon Valley phenomenon known as “rest and vest.”
“The thinking has been turned on its head, from, ‘We want everybody to stay in their seats,’ to, ‘We don’t want to put handcuffs on you so you’re sitting around,'” James said. “If you’re not committed, take the money and go.”