PART I: The Impact of RSU’s on the Talent War
Emerging trends in compensation in Silicon Valley are turning the world of talent acquisition upsid Despite a mixed employment picture in the rest of the country, a talent war is taking place betwee companies in the Valley. The fight for talent between Google, Facebook, Apple, Twitter and Zynga i cash and equity compensation to higher levels and forcing companies of all sizes to find creative w attract and retain top talent. Meanwhile, the funnel for venture-backed funding continues to powe companies fueling the increasing need of top talent.
While smaller companies continue to offer the promise of huge returns on increasingly aggressive packages, the big guns are strategically incentivizing top talent to stay with a whole new arsenal of Two favorite lock-ins for public companies are restricted stock (RSUs) and retention bonuses. RSU’s exactly like cash and can neutralize the allure of jumping to a startup. In a recent search I led for a President of Engineering for a $50 million venture capital-backed company, a leading candidate – one of the big guys – was making $225K base and 50% bonus. This translates into a cash bar of $3 just falls within reach for the start-up. But the candidate also carried a grant for the next several ye RSU’s at a current market price of $30, adding another $300K to the price tag for the engineering e candidate.
Historically, a winning startup could overcome the cash + equity deal of a public company with the a smaller cash offer combined with high value equity. But these days, candidates are savvier. If you math, you may be surprised – between $637K guaranteed cash (for the public company) and a pac $300K plus 1% equity, for instance, for the $50 million startup. While the current valuation estimate startup company is $150 million, the implied value for the engineering executive is $1.5 million tod for the risk of both good and bad outcomes your expected value is today’s value. So if nothing cha expected value of equity for the next four years is $375K annually. Seemed like a good deal, right? only a $675K take per year at the startup vs. $637K to sit tight. After adjusting for risk, it’s hardly th gold at the end of the rainbow.
Now, clearly more rosy outcomes would provide more extraordinary returns. However, the dead weight effect of throwing RSU’s at top talent is really starting to erode the financial incentive of jumping into a start-up. With RSU’s, public companies are aggressively fighting back by raising the stakes in the talent war in Silicon Valley.
In future articles, we’ll continue to explore the many ways that compensation in Silicon Valley is being turned upside down.
Richard Lear is the Founder and Chairman of Vantage Partners, a leading retained executive search firm in the Bay Area. He can be eached via email at [email protected] or by phone (415) 456-8100. Visit Vantage Partners at www.vantagepartners.net