Rapid raise in stock prices result in some people in the company being overpaid. This can be very bad for the overpaid employee and also very bad for the company.
Many tech companies are going public right now and many tech companies have seen significant share price increases in recent years. We can expect that most of these are facing real internal motivational challenges that could be extremely hard to overcome.
The weirdness of RSUs in public companies
Let’s say that a company gives you an offer of $100k salary and $500k in RSUs vested over 5 years. That essentially means that the company values you at $200k per year (as stock and salary are fairly fungible in public companies).
Let’s say the stock goes up by 20% after six months. The RSU grant (over 5 years) is $600k and your yearly comp goes from $200k to $220k (a 10% increase). No big deal for the company as you are probably worth more than 10% more than what they originally offered you because you now have been at the company for 6 months, understand the processes there, have grown your skills, etc.
But now let’s look what happens when they stock goes up by 300% after 3 years (which happens in the tech world). Now the original grant of $500k is now $2 million (over 5 years). So the stock alone is $400k per year. Add in the salary (with assuming some raises is now $150k/year) and you pulling in $550k per year.
This is when things get a bit hairy. Because likely the company only values you at $350k so you are making $200k more than you are worth. In fact, if you quit the company and went to work for its top competitor, you might have a hard time getting more $300k.
So now both you and the company are in a bind.