Predicting attrition based on stock price
Which employees are most at risk? It depends when they started.
Tech stocks are down 33% year-to-date, and many comp leaders I meet with are concerned about what this means for retaining talent.
As we head towards the Q1 comp planning cycle, which employees are most at risk?
I put together a simple model to predict the answer.
Unsurprisingly, employees who started in 2021 (when stocks were at an all time high) are most under water right now.
However, the big attrition risk next year is employees who started in 2019 - no matter what happens to the stock price, their original new hire grants fully vest, leaving their remaining unvested stock from refresh grants deeply under water.
Conversely, 2022 hires could stand to win big.
You can play with the model here.
Model inputs
Let’s imagine four software engineers with similar offers and refresh grants; the only difference is they started in 2019, 2020, 2021, and 2022, respectively.
For compensation, each received a market-rate new hire grant and is eligible for a refresh grant equal to 40% of the new hire grant each subsequent year. Vesting is four years, and each sells her vested stock immediately. The market-rate new hire grant has been creeping up each year.
Finally, let’s assume you are a public company, and your stock price was $100 in mid-October 2019, then tracked the NASDAQ average: $144 in 2020, $187 in 2021, and down to $128 in 2022.
Who is at risk now?
The 2019 employee and 2020 employee are in a similar position.
Both experienced a massive surge in unvested equity value as tech stock prices ballooned through the pandemic, followed by the massive plunge in 2022. However, both employees hold unvested equity at approximately the current market rate; 102% and 98% of market, respectively. Riding the roller coaster down wasn’t pleasant, but they’re competitively positioned with stock.
The 2021 employee is substantially at-risk with unvested stock at 87% of the current market rate. Another company could easily make a competitive offer and pick her off.
The 2022 employee is sitting flat (assuming she joined mid-year or later). For her, it depends what happens next year.
What about 2023?
Let’s assume stocks are completely flat next year.
When the 2019 employee’s new hire grant fully vests next year, she will only have unvested stock from refresh grants. The grant values from 2020 and 2021 are way down (11% and 32%, respectively), dragging the unvested total well-below a competitive new hire grant. Meaning 2019 employees are ripe for the picking.
The 2020 and 2021 employees’ unvested value has stabilized from more recent refresh grants, evening out the declines.
The 2022 employee is in the strongest position, with the larger new hire grant dominating the weighting of her unvested stock and no stock decline. And if stock prices go up, she’ll have timed the market and won big.
The bottom line - volatile tech stocks over the past four years mean unvested equity varies significantly by new hire cohort.
Run the numbers and plan your retention strategies accordingly.
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