Why is stock such a big portion of compensation for the big tech companies?
Some explanation, in case people aren't familiar with "big N" or FAANG comp schemes: when you get an offer, you're given a "base salary"—somewhere between 100 and 250k unless you're quite senior—a four year RSU (stock) grant with some vesting conditions, and info on typical year-end cash bonuses and RSU refreshers. The annualized four year grant is usually somewhere between 50% and 200% of your base salary, depending on seniority. See levels.fyi for details. A "refresher" is a four year grant given in each of years n, n + 1, n + 2, ..., where n is typically year 2. The refresher is usually a quarter of your initial grant, but companies often given themselves a lot of legroom to adjust this number depending on market conditions, employee performance, etc.
* Its cheaper for the company than cash (stock is the company's currency, they can issue more of it, decrease the supply, use it as collateral in financing etc)
* It can be better for the employees (pay less in taxes, more opportunity for growth)
* Incentives become aligned (I now care about the continued success of the company more so than I otherwise would)
They have one level and pay all cash with an option to convert some of it to equity.
For example, for a 500k salary you could say, I want 200k cash, and 300k in stock
Levels is showing that the average senior engineer at Netflix is only getting $11k stock though. If employees were allowed to choose what percentage stock they wanted, I'd expect most employees to choose a larger percentage than that.
Stock is likely to grow in value over the course of the year while cash is almost guaranteed to lose value due to inflation. You'd have to be pretty pessimistic about Netflix's future to choose the all-cash option. And even if you're only neutral about it, the stock is the better choice because it's inflation protected.
If I were a Netflix employee, I'd probably choose $200k cash, $300k stock. The fact that levels is reporting such wildly different numbers tells me employees don't actually have that level of freedom to control their comp.
versus
If you get cash, pay income tax on it, and then invest it, and then pay cap gains, that's another round of taxes you pay no?
ESPP can be a bit different, because you get a discount on the stock, but that discount is also taxed at normal income rates, and anyways is capped at like 15% or something.
The Employees do get the benefit that between the grant date and vest date, the RSU value could increase. And the employee gets the benefit of capturing that growth.
E.g. if 100k of RSUs granted, and 25% of it vested each year. Say in year 4 the value doubled. So they'd get 50k of RSUs and when it vests the employee is taxed as if it is income, and pays income tax on the 50k value.