The New Hot Employee Benefit: More Stock When the Price Tanks

There is a new hot employee benefit in town.

Some public companies which offer stock-based compensation have recently made “one-time” adjustment grants to employees as share prices fall. The phenomenon has been pronounced among technology companies, where many workers count restricted stock units as a crucial part of their total compensation package.

Technology stocks have been affected by increasing concerns about inflation, and the Nasdaq Composite, the tech-favorite stock market index, has dropped more than 9% since the start of 2022.

Robinhood has taken steps to reduce possible attrition among its 3,400-strong workforce due to its recent stock performance.

According to verified Robinhood professionals on the professional social network Blind, the stock-trading app granted equity to new employees who started at the company after its debut on Nasdaq on July 29, 2021.

Employees who started at the company before July 2021 have mostly retained the value of their initial new-hire grants, explained a verified Robinhood employee on Blind. The grant price for these employees might be $15 per share or even lower, depending on their tenure.

Despite its popularity among retail investors, shares of Robinhood have struggled since its initial public offering. The company’s shares traded 8% lower at the end of its first day of trading, and the share price is down 84% from its all-time high of $85 as of Jan. 19, 2022.

How much stock are Robinhood employees receiving?

Robinhood’s “one-time” adjustment grants new hires additional stock over the next 24 months to help employees “break even.”

“The new equity is adjusted by how much your equity is below your target today,” a verified Robinhood employee said on Blind, referring to an employee’s initial equity grant as a new hire.

The equity grant is not retroactive, which means any differences or potential losses since an employee’s start date and Robinhood’s adjustment may not necessarily be accounted for.

A Robinhood employee shared a hypothetical of an employee who received an offer for $300,000 in total compensation and joined in July 2021.

If the hypothetical employee now earns $200,000 because of the difference in Robinhood’s share price over the last six months and their offer letter, they will receive an additional grant of $100,000 each year for the next two years. The grant is intended to “reset” an employee’s pay to the promised $300,000 amount in the offer letter going forward.

Robinhood’s one-time equity adjustment grant differs for each employee depending on their offer letter’s promised compensation.

In the hypothetical, the employee set to earn $300,000 each year would have suffered a pay cut of $50,000 because of the lost value of the stock ($100,000 per year) divided by their half-a-year tenure.

The bottom line

Professionals should consider factors outside of base salary to determine their total compensation package. If offered, stock-based compensation, such as stock options or restricted stock units, can be an attractive benefit and lead to potentially life-changing windfalls.

However, stock-based compensation involves risk. Share prices can be impacted by the company’s past performance and prospects for future growth and external factors if shares are publicly traded on a stock exchange.