If you work in tech, you might be feeling it’s time to make a move. With tech stocks down—some by a lot—your company stock may not be as valuable as it was last fall, when stock market indices were hitting all-time highs. At the same time, work may not be as fun these days with recession looming and people leaving. And the lowest unemployment rate in 40 years means there is opportunity out there. When you put it all together, you might have a compelling case for looking around for a new position.
First, though, there are two big financial factors that need your consideration.
1. What are you leaving behind?
The first factor is understanding what you will be leaving behind by moving on from your current employer. What dollar value of unvested incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock units (RSUs), or restricted stock will you be giving up? If the dollar value of unvested stock is a significant portion of your net worth, you will need to think long and hard about leaving that much money behind. The last several years in the tech space have been euphoric, and money came easy. It’s not always like this. In fact, it hasn’t been like this since the dot-com boom of the early 2000s, 20 years ago. It’s important to keep perspective and appreciate how fortunate you may have been in receiving your current stock grants. Remember also that while tech shares are down now, they will likely increase in value again later, assuming your company is sound. (Patiently waiting for your company’s stock price to recover as global stock markets recover also spares you the disruption of proving yourself at a new company and adjusting to the change, and spares you the career risk if the transition doesn’t go smoothly.)
Before deciding to make a shift, it’s a good idea to run financial planning scenarios to figure out what impact a job change will have on your longer-term financial goals, such as getting to “work optional.” What hit will you be taking to the Monte Carlo success rate of your financial plan by leaving the unvested stock on the table? Monte Carlo success rate is the one number that summarizes your current situation and possible future outcomes into a single, key performance indicator. If removing a large amount of unvested stock from your financial plan greatly reduces your Monte Carlo success rate, you may want to stay put. Or you may believe the opportunities you’re seeing will likely replace that future income. Which brings us to the second main factor to consider.
2. What are you going to get?
At a minimum, you’d likely want to replace the dollar value of unvested stock you’re leaving behind. In the best-case scenario, you have the opportunity to earn more at a company with higher upside. Take a thorough look at the financial incentives available to you in a career move and determine the total value of the compensation package being offered. Also, consider what stage of growth the new company is in and what types of equity compensation are available. Will you receive ISOs, NSOs, or RSUs?
If you’re making a lateral move from a publicly traded company that issues RSUs to another publicly traded company that issues RSUs, it’s fairly straightforward to compare compensation packages. You know the current stock price at both companies, and you know how many shares you have left to vest and how many shares are being offered. The key difference is a potential reset in vesting schedule. You may have to wait longer before you can start selling shares at the new place. And you’ll have to try to evaluate the potential of long-term stock price appreciation at both companies. This is nuanced investment analyst work, and it can be hard to get it right.
If you’re looking to join a start-up company, comparison gets trickier. The number of shares listed in your offer letter doesn’t tell you much—you’ll need to understand the value of those shares. One of the best ways to do that is to ask what percentage of the company those shares represent. For example, your shares might represent ownership of 0.2% of the company when fully vested. Knowing this, you can multiply your ownership percentage, 0.2%, by your expected future value of the company to find out what your stake could be worth. If you think the company might be worth $500,000,000 upon a liquidity event, either an initial public offering (IPO) or acquisition, your shares could be worth $1,000,000.
With start-ups, the stage of the company factors into the ultimate value of your stock as well. Each new financing round results in you owning less of the company, as your ownership is diluted by new cash investment from outside investors, and early stage start-ups will need more financing over time. Your hope and expectation are that the company value continues to grow to offset the dilution you experience.
Because evaluating start-ups requires so much estimation of future success, it’s helpful to think about the job opportunity not as an employee but as an investor.
You’ll also, of course, want to look closely into the specifics of the stock grants offered. Many, if not most, start-ups offer new employees ISOs, which are very different from the RSUs more common at larger public and private companies. A nice feature to look for with ISOs is the ability to early exercise your option—that is, exercise your option to buy shares in the company before your option is fully vested. This feature can save you a significant amount of tax, making a compensation package more lucrative.
Since evaluating a potential compensation package from a new employer is complex, it can be helpful to create financial planning scenarios using different final stock values. This can help you explore the boundaries of what’s possible and whether that set of potential future outcomes is attractive relative to your current situation. Put another way, did your Monte Carlo success rate go up with the job change, moving you closer to your goals, or not?
While the financial aspects of your job-change decision are not the only considerations—after all you need to be happy at work—they are important. When going through your decision-making process, be cognizant of what you’re giving up as well as what you’re likely to gain in return. It’s a balancing act, and you’ll need to decide whether the net result moves you toward or away from your goals, both financial and personal.
Parkworth Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you would like help evaluating a job offer or making decisions about your equity compensation at a new employer, schedule a complimentary consultation.
