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I am a German and got a job offer from a US company. This is the first time a company offers me a salary and restricted stock units (RSU). German companies usually do not grant RSU for non-senior leadership people.

The salary itself is below the market. But including the RSU the package would be above the market. Because that the stocks are publicly traded and that the company is well-known and successful I do not see much risk and I think it is very unlikely that the stock might fall that much that I would end up with a total compensation below the market at the end of the year.

But then again once all stocks units are vested the total compensation would be below market. How do companies usually handle that?

I guess they will offer new RSUs or increase the salary massively to match the market again. Or do companies ignore this situation and wait for employees to start a negotiation? With the risk that these employees move on to companies making them better offers? Maybe this scenario is one of the reasons for the short retention of employees in US tech companies?

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I used to work for Amazon who compensated employees this way. When you are getting to the point where your RSUs are nearly vested, they will grant you more RSUs so that your total compensation remains at the market level.

Amazon had a maximum cash salary at the time of $150,000. All compensation above that was in RSUs. For some senior employees, more than half of their compensation was in RSUs.

Not that the R in RSU stands for restricted and not reserved.

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  • To be fair, this is one example and not necessarily indicative of how US companies in general manage RSUs.
    – D Stanley
    Aug 17, 2021 at 18:05
  • $150.000 sounds a lot for work in Germany, though. Aug 17, 2021 at 22:29
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How do companies usually handle that?

They don't - it's a part of your compensation that is variable. It's a risk you take taking part of your compensation in equity. But, the risk goes the other way, too - if the stock performs well, they don't reduce your compensation to "match the market".

Also note that "the market" in the US is highly variable based on location, and since non-executive salaries are private, there's no way to accurately measure what the "market" rate is for any given position.

If you feel that your compensation is "below market" or there's too much risk in the equity portion, you can ask for a change in allocation, or an increase with whatever protocol your company allows (it may be as simple as a conversation with your manager). Or look around for a similar job that pays more and either take it or use it as negotiating leverage.

I don't know German culture, but in the US, compensation (especially for for professionals) is highly individualized. Companies may use (or say they use) some formula to determine salary, but in the end they'll pay you whatever you'll accept to work there. I've managed teams with members that varied in salary by as much as 75%. The percentage increases were generally consistent based on performance, but there was no automatic process to make sure people were "at market". If you were paid less than market and either didn't know or didn't want to negotiate, then that's where you stayed.

--- EDIT based on comments ---

If the RSU is just a "sign-on" bonus that is clearly stated in the offer, then treat it as such - make sure you are comfortable with the ongoing salary alone.

If it's part of a periodic "bonus" program, then see if it says whether the equity portion is fixed or variable.

I've worked at places where your annual "bonus" was paid out in part cash and part equity, with the equity portion adjusted based on the current stock price. So if the stock plummeted, your cash portion of the bonus was set but you'd get more shares (e.g. you could expect to get $20k in cash and $20k in equity, getting however shares it took to get to that amount).

But also remember that bonuses are not always guaranteed and can be cut depending on company performance.

In short, it again depends on whatever you're willing to accept. If they don't offer enough or there's too much risk in the equity/bonus portion, then look to see if you can get a better offer elsewhere.

Maybe this scenario is one of the reasons for the short retention of employees in US tech companies?

I think there's a lot more to "job hopping" than having a variable portion of compensation.

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    I understand that RSU as variable portions of the compensation works in both directions and that there is a risk for both sides. I am more confused that the variable portion of the compensation will be "canceled" once all vesting is done. And that there is no "default" way how to handle that. It sounds to me like "Your salary is X but we will reduce it by 1/3 in three years" which sound to me like "we want you to go away in three years" because there is basically zero chance to get a 50% salary increase to compensate that loss in total compensation. Aug 17, 2021 at 14:08
  • OK Maybe I misunderstood the question - is the RSU just a "sign-on bonus"? Or are you wondering if RSUs are granted every year? Is that not spelled out in the offer?
    – D Stanley
    Aug 17, 2021 at 14:11
  • The RSUs are vested over three years. Each year one-third of them. All details are spelled out in the offer. I think my confusion comes from the fact that I never had a part of my compensation only for a certain period. I had variable parts before but those variable parts were set for the entire period of my employment. Like I was able to get a bonus of x when I reach the goal y each year of my employment not just in the first three years. Aug 17, 2021 at 14:21
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    I would clarify the ongoing compensation with the recruiter if it's a deal-breaker. It's not uncommon to get new grants annually that vest over X years, so you always have several staggered grants that vest every so often.
    – D Stanley
    Aug 17, 2021 at 14:24
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    The board may set a budget for the # of shares that can be granted, and the management can determine how to split that among employees, but it's definitely feasible for there to be additional grants in the future (but maybe not guaranteed)
    – D Stanley
    Aug 17, 2021 at 15:15
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Companies issue restricted stock as a way of retaining employees -- the unvested units give you an incentive to stay with the company until they vest. Meantime, the company has given you more unvested units... Sometimes there's even a formula: HR says that each employee's unvested shares should add up to some percentage of their salary.

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