Tech Shares Are Crashing, So Kiss Goodbye to Your Employee Bonus

tech.hindustantimes.com:

The plunge in technology shares is providing investors with a harsh lesson in the reflexivity of stock-based compensation, which acts as a tailwind for companies while stock prices are increasing but can hamper employee retention and threaten cash flow when share prices collapse.

Loss-making mobile-games company Skillz Inc., for example, in September promised chief executive Andrew Paradise a bonus worth roughly $175 million if he could reverse a steep decline in the share price and quintuple the market value within seven years. 

However, the rout continued — the shares have declined 96% since last year’s peak —  and in March Paradise agreed to cancel his compensation plan so the San Francisco-based company could top-up equity awards for the rest of the workforce instead. Skillz is also boosting salaries by 15% to discourage employees from quitting. The added wage expense will, though, make reaching positive free cash flow even harder.  

Its predicament is one shared by scores of neophyte technology companies that are suddenly under pressure to generate profits, rather than just rapid revenue growth. Pandemic winners such as Peloton Interactive Inc. and Robinhood Markets Inc. are slashing jobs, and the morale of those who remain has been bruised by the shrinking value of employee stock awards.

For younger tech employees, their first experience of a really vicious bear market comes as an unpleasant shock. For the past decade, tech companies seemed only to shower them with wealth. By accepting stock in lieu of cash, however, staffers were effectively providing cheap financing to their employers, a decision that now doesn’t look as smart. When stock prices crater, workers “discover that they’ve been earning much less than they