Staying competitive with equity comp in a volatile market

Market shifts, shareholder pressures, and equity compensation all made for great topics in our latest webinar with Tom Langle, equity comp expert and Principal at Compensia. Tom and Charlie discussed the current state of stock compensation in high-tech growth companies and a need for them to adapt their equity comp strategies. Read our recap below, or revisit the recording at any time.

Current state of stock compensation

Charlie noted that it's proxy season, and most companies have completed their 2023 annual compensation cycles. While some large tech companies have seen a recovery in stock prices following a tough 2022, the tech industry overall remains stagnant, particularly those companies that previously prioritized growth at any cost and now face persistent layoffs. Cash compensation budgets have returned to normal after peaking in 2021, while bonus payouts flattened in 2022. Charlie also mentioned that employees who leave their jobs may receive different premium offers due to market rotation and lower stock prices.

Adjusting quickly enough for market dynamics

Tom cautioned that calling the current market situation a “crash” might be an overstatement, despite a shift from 2021 to 2022. Equity burn rates increased in 2022, particularly in the year’s first half. Many companies struggled to adjust quickly, issuing more shares to meet comp targets. Companies with more aggressive comp philosophies and reliance on equity—especially those that faced stock price corrections—now face shareholder pressure to course correct. Tom also noted that companies feel compelled to reduce their equity spending in our current situation, where share prices remain stagnant. This, on top of a talent surplus from layoffs, has caused substantial changes to new hire transaction values. As a result, companies are considering more creative approaches to comp.

Adapting equity compensation

With a shift from growth-focus strategies to profitability, as Charlie noted, companies are revising new hires’ eligibility criteria and grant sizes to offset market volatility. Some strategies include reducing lower-level eligibility, adjusting grants by location, and pausing refresh grants for corporate roles.

Private vs. public companies

While late-stage private companies have more control over their narrative than public companies, they need help communicating about equity, especially when its value is seen as stale. Tom mentioned that some private companies are considering option repricing to adjust strike prices and increase employee upside value.

Shareholder pressure on equity programs

Charlie mentioned the trend toward shorter stock vesting schedules and asked if companies were responding with reductions in grant values. Tom explained that, yes, while 50% of companies were previously using four-year vesting, they’re now pairing shorter vesting with reductions in grant values.

Real-time data sources

On the topic of using real-time data sources like the Compa Index to set equity compensation, Tom highlighted some advantages, such as instant insights into offers, win rates, and trend analysis. With live data, companies can make more data-driven decisions and see insights unavailable with traditional surveys.

Trends in equity programs and vesting schedules

A flash poll of about 50 tech companies indicated some trends in equity program design, such as a decline in standard vesting schedules and an increase in front-loaded vesting interest. Some companies may be opportunistic in today’s climate, especially those facing pressure to pull back in hiring. Tom and Charlie also discussed the “boxcar” approach to vesting schedules, which involves delaying the vesting of refreshed grants until the previous one has vested. This approach is gaining more traction among early-stage private companies led by former Amazon employees.

Managing pay transparency in a volatile market

The conversation rounded out with the challenges of pay transparency and pay equity in a volatile market. When Charlie asked how large companies can ensure they pay people fairly and communicate effectively, Tom acknowledged the onus on compensation professionals and the evolving regulatory environment.

About Tom Langle

Tom began his career as a compensation consultant in 2010, and in 2019 he joined Compensia, where he provides research and advice on executive compensation to committees and senior management at technology companies. His clients range from mid- and late-stage pre-IPO to newly public and enterprise technology companies. He has extensive experience helping high-growth companies transition from private to public ownership and navigate difficult compensation, governance and shareholder issues. Prior to Compensia, Tom led compensation consulting in a major technology vertical at Mercer, where he also completed a 2-year assignment on the executive remuneration team in Sydney, Australia.

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