085: 2025 Trends in Tech Equity Compensation

00:01 - 31:13 | Christopher Nelson: If you think that people in 2024 were not making money working for tech equity, then you're wrong. Yes, I know that there were a lot of layoffs in 2024. I know that the IPO market wasn't booming. But under the radar, there were people, there were technology professionals, just like you, that month over month, quarter over quarter, were making very valuable tech equity. And I want to set you up for 2025 so that you can be ready. So I'm going to be sharing with you some insights and some tips into public company equity, private company equity, so that coming into 2025, you're going to be aware of all the trends and things that you need to look out for so that you can be trading your time for the most valuable tech equity possible. Welcome to Tech Equity and Money Talk. I'm your host, Christopher Nelson. And I know life moves at you fast when you work in technology companies and you have a front row seat to the future, everything moves at you fast. But the reality is you need to stay up on the trends when it comes to equity compensation, because this is how you truly build wealth. You have these incredibly valuable skills and understanding how you can leverage those skills for the best possible equity is what's going to get you the upside and allow you to get to financial independence. So in this episode, I'm going to break down for you some trends that we're seeing evolve around equity compensation for technology companies. Going into 2025, we're going to break down public company equity, which is by far the most valuable equity because it is liquid. It should be growing in value and you can trade it and take equity off the table and diversify your portfolio. We're also going to dig into the private equity market, understand what's going on with companies that are waiting to go through IPO and what other opportunities are happening in private companies today. This can be a lot to take in. I know that equity compensation can be overwhelming and it's something else that you have to learn in addition to your very complex and complicated day job. But if you really want to learn how you can get the most value for your time and compound your career compensation, why don't you subscribe to our YouTube channel, follow our podcast, wherever you listen to podcasts, and even subscribe to our newsletter, techequityandmoneynews.com. When you plug in, you're going to get all the up-to-date resources on how you trade your time and talent for tech equity so that you can get the best return on time. All right, let's get into it. There are two broad categories of equity compensation that I want to dig into today for technology companies. There's public company equity. When you're working for a company that is on one of our public stock exchanges here in the United States, New York Stock Exchange, NASDAQ, or a private company that is privately held by investors and owners and that stock can't be traded. It's important that we think about both because one of them is inherently more valuable than the others. And contrary to popular belief, you're going to hear out there on the street, you can only make money working for private technology companies. And that is false. The reality is that people who are continuing to build wealth month over month, quarter over quarter, are the ones that are working for the public technology companies. And so this is what I wanna dig into first. I wanna look a little bit into public technology companies, what was some of their performance in 2024, and then also look at what are some of the trends around equity compensation for public technology companies going into 2025. It's important, listen up, because all of these trends that you're going to hear are opportunities for you to capture more equity in your day job. So let's talk about performance 2024, the magnificent seven, which are seven publicly traded companies. It's Apple, Microsoft, Nvidia, Amazon, Tesla, and Alphabet, also known as Google. If you look at the average performance of those stocks in 2024, they were up 53% over the previous year. Why is that important to you? It's important to you because if you had equity compensation in those companies, and let's say you were going to invest in 2024, $200,000 of equity in one of those companies, and you take the average and increase by let's say 50%, you would now be getting $300,000. That's almost like getting an additional paycheck added in addition to your already very favorable equity compensation. This is why it's so important to understand that equity compensation in public companies is highly valuable. Those people also had the ability to diversify, take those dollars off the table, start putting those into other areas of the market or even into private equity investments where they could diversify their holdings and create a very valuable portfolio. So that was the magnificent seven. The software manufacturing sector as a whole, which is very large, has a few hundred companies in it. It was up 15.5%, so 16%. It's so important. that we sometimes turn off the noise of the media, right? The media wants to tell us what to think, what's right, what's wrong, but we have to read between the lines and really understand what's happening. And the reality is working for private company equity has a lot more risk. Public company equity, those shares are liquid, those shares have a value. So when we think about working for public companies going into 2025, I want to dig deep into some of the trends that are happening so that you can look for opportunities where you can start taking more equity off the table. So one of the big trends that emerged in 2024 that is going to continue into 2025 is AI driven equity compensation strategies. So taking a quick step back, why equity compensation in the first place? It is to attract and maintain the best employees. So if you have, if you're a very highly skilled person, whether you work in procurement, whether you work in finance, or you are a software engineer or a software salesperson, these companies want to attract you with equity. They're now using equity compensation strategies that are being analyzed by AI to understand across these larger companies where they may not have been compensating people correctly. They found that there was a huge disparity. There was a 13 percent gender pay gap that they're looking to now rectify. In a lot of these situations, bringing equity to the table. And they're trying to ultimately understand where their opportunity is to provide more equity compensation to reduce their churn rate. What does this mean to you? It means that asking whether your company has one of these AI driven compensation strategies is important. Know whether they're planning to implement it, whether they've implemented it, and connect with HR and ask, what does this mean to you? In these companies, you need to be able to feel empowered to ask about what's happening with compensation strategy. What are the goals around retention? Because you're not just an employee, as a shareholder, you're also an owner. And so respectfully asking these questions are important. So understanding that if your company is having some of these AI-driven equity compensation evaluations is really important. There was a great article I read. It's called The Role of Artificial Intelligence in Developing Fair Salary and Equity Policies. Um, you can go scan that. I'll put the link in the show notes. Companies are continuing to leverage equity compensation as a retention tool. There has been a lot of turnover there, you know, as it is now it is a, a buyer. It's a hiring market, meaning that the companies have more leverage than the people looking for employment, the people looking for roles. So what this means is that they're going to want to hire and retain this great talent that they've been searching so hard for. So they're going to leverage equity compensation. So this is your opportunity. If you're highly skilled and highly valued in your role, to lean in as you're getting to an annual review cycle and ask, okay, what is the new equity compensation for my range? Is there going to be a change? Ensure that you do some market research. You want to go to levels.fyi. You want to understand what equity compensation is at your level at similar companies so that again, you can advocate for yourself and get more equity because they want to ensure that they're reducing the turnover, reducing the churn so that they can ultimately meet their goals. In this age of AI, in this age of cybersecurity, there is such a need for highly skilled employees, and not just in those disciplines, but in other disciplines as well. I know as far as data is concerned, AI, machine learning, and also a lot of cloud roles, site reliability, engineering. There is now skill-based equity compensation, meaning if you're at a specific level, you're at an L7, and you also have a deep skill level in data engineering, they are now giving additional equity to secure those roles. That could also be a scenario of, it said a VP leading digital transformation initiatives can also be awarded performance-based. So looking at skills and performance. As we're moving into, there's headwinds in the market around hiring. There is a real opportunity here to be able to secure more equity for yourself in these particular roles because companies are trying to prevent churn and to continue to move forward. The one that I'm really excited about that is coming on the radar that I heard about earlier this year is flexible vesting schedules. It's so important that you realize that equity is around a grant. How much equity are you going to get? Is it 1,000, 5,000, 10,000 shares of equity? And then the vest, which is over how much time will you receive those shares? Traditionally, the vesting schedule was four years with a one-year cliff, meaning you would not vest for the first 364 days. On day 365, you get 25 percent, and then it would vest quarterly 25 percent year over year. Now, companies are exploring flexible Vesting schedules that some of them are accelerated. I heard and spoke about 50, 30, 20. So it's a three-year vesting schedule, 50% in the first year, then 30%, then 20. Again, this is to be able to attract and retain employees. It's so important that you understand that there are going to be refreshed schedules. So as your equity starts dwindling, they're going to bring more equity to the table. Having a shorter, more flexible vesting schedule does empower you as the employee because you're able to take more equity off the table earlier. You own that equity. You can decide what to do with it as far as sell, hold, and ultimately then you will have more control over your career. It reduces the time that you can spend in the golden cage or with the golden handcuffs because of that. So these are all important trends that we've seen emerging in 2024 in public tech companies. But going into 2025, these are going to be some of the biggest ones. So I want to make sure, slow down, recapture these things so that you can put together what is a plan for you. Number one is you want to ask what is happening at your company around these policies. You're going to want to ask HR. There usually is some type of compensation specialist, especially if you're in a larger public technology company. But you want to understand, is there any AI-driven evaluation of our compensation strategy where we're going to get an output and are employees going to know and understand what's going on there? Number two, ask about whether they provide additional equity compensation to retain employees? You're just trying to get informed. You're not trying to scare anyone that you're on the way out the door. But you want to ask these questions. Also understand, are they doing any skills-based allocation? Is there an opportunity for you to get some additional training so that you can increase your skill? You can take more equity off the table. Also understand, as they're doing refresh schedules, are they going to be changing the vesting schedule? This is also something, if you're thinking about moving a position this year, understanding these new companies. Are they trying to attract people? with some of these different investing schedules. If you continue to invest and work in understanding what's going on with equity compensation, you can ultimately take more valuable shares off the table and get them into your portfolio for financial independence. It is important to understand that looking forward to 2025, they are seeing that merit increases, your salary increases are going to be relatively flat or small. That's important to understand where your negotiation is because cash usually can be limited and can be constrained, where equity is something additional that they can provide. So this is where you need to understand what are the levers and what's important for you to be taken off the table. And this is also where they're looking at an increase in 2025. Some of the trends are towards other non-cash elements, whether they're actually giving more travel perks and benefits, allowing more paid time off and those types of things as well. That was a lot. I know that equity compensation can feel a lot like jargon, fine print, but in reality, it is much more simple than that. And this is the passion that I have here at Tech Equity and Money Talk to teach you week over week, month over month. So I want to make sure if you have any questions, we do have some equity basic playlists that you can listen to where you can get some of the foundations that we have here. You can go read on tech equity and money news. We have a tech equity compensation guide that you can read through and understand the fundamentals. But ultimately, if you want to continue to get educated and understand how you can leverage tech equity to make those tech millions, then I would need you to subscribe on YouTube or ask you to follow wherever you listen to podcasts. Let's talk about private technology companies and what was their track record in 2024. Now taking a quick step back, private technology companies, this is where I built my wealth. I worked for four pre-IPO companies and three of them went through an IPO. That's how I generated the majority of my wealth. But I do have to say, there's more risk involved. This is not the steady quarter over quarter vesting that you're going to get in a public technology company. So this is why it's more important that if you're going to be investing your time and talent in private technology companies that you really understand the details of what's going on because the game has changed. The game has changed. So number one, I want to read out a couple of stats here because this is really important. Private private companies, right? They make, you make your money. The investors make their money. When you go through an exit, that can be an acquisition or that can be an initial public offering also known as an IPO. So 2019, there were 37 tech IPOs, 2020, there were 46. 2021, there were 121. I was a part of one of those and GitLab went public. 2022, so think about it. 2021, 121. 2022, it dropped to six. 121 to six. Interest rates are starting to go up. Breaks are pumped. 2023, there were nine. Now 2024, there was a little bit of a rebound. We came back at 16. I think some of the ones that we know about, Reddit, Astrolabs, there were a few of those that had some bigger names that we understood. And the IPO proceeds reached $16.7 billion in the first half of 2024. And that was an 87.3% increase from 2023. So there is more movement in the market. But if you look at those numbers, 2022, six, 2023, nine, and 2024, 16, that didn't touch any of the levels in 2019 through 2021, 2021 was 121 companies. And we also know that there were some big ones. Like let's not forget, there were some large companies that have chosen to remain private stripe Databricks, and Figma. Figma is one that we followed here, especially in the newsletter. So What does this mean to you? It means that moving into 2025, you have to understand the market conditions. If you're going to be working and trading your time and talent for private company equity, you have to understand the trends and understand what you need to know to be able to get value out of it. Don't fool yourself. Do not fool yourself. And I hope you've stuck around to listen to this because this is so important that everybody understands equity compensation is not a savings account. You don't just get the equity and you put it over here and then you wait and then something happens. And especially private company equity. You need to understand the timing. You need to understand the type of equity you have and manage it. And I'm telling you this because now the game is becoming even more nuanced. Now, moving forward, because many of these companies are staying private longer, there are extended holding periods for the stock. So for example, in Q1 of 2023, 20% of the startups allowed longer exercise windows, twice the normal average. So what they did is they tried to extend these exercise windows and part of it was extending the traditional 90-day window for departing employees so that if they were having layoffs or other things, they could make sure that those employees could still get benefit from the stock. That's important to understand and this is a fundamental change to the way that equity is being deployed because these companies are realizing they may need to attract employees to expand, but then they may come to the point where they contract and they realize employees are getting so smart. They're understanding tech equity so much that they want to exit on the, they want to understand what are the impacts of the exit when they actually leave the company. So that's important to understand. They're extending the holding period and trying to provide, you know, options for them to hold on to those shares even when they've been laid off and or terminated. Number two, this is the most important one, is there's an emphasis now on secondary market access. Secondary market access and or, you know, private company liquidity. So there was a story that I published in Tech Equity and Money News earlier this year that talked about the fact that Stripe, who stayed public for a long time, grew their value as a private company, had a lot of older employees who were coming to expiration dates on their RSUs. And what they did is they created a secondary market offering, also known as a tender offer, to buy those shares at current market value from employees. So employees were granted some RSUs here, they had growth, and they were able to then get liquidity. There's also secondary markets like Forge Global. Forge Global is one. If you read the newsletter, I'm always bringing in articles or talking about what's happening on Forge Global because they are able to buy and sell shares of private companies on a secondary market. In some companies that you will know, you have the opportunity to buy shares there if you're not in those companies, or you can also sell shares there as well. This is going to become more prevalent as companies are staying private for longer. What does this mean for you? Well, it means that the way that the private technology company equity game is changing, it's not going to be all about the IPO. There's now coming to the forefront, tender offers, secondary market offers that you need to understand. It's so important to understand this because if you're trading your time and talent for hard-earned equity, and that equity you're not able to realize the value and diversify that, then you're not able to then start building a financial fortress for you and your family. So this is arguably one of the important trends, the most important trends of private tech company equity going into 2025 that you have to be aware of, and you have to get informed. And if you want to get informed and stay informed, then stick around here at Tech Equity and Money Talk, because this is what we live and breathe. Also in private companies, similar to public companies, accelerated vesting schedules. I have heard in two or three different offers that I've had friends receive in private companies, the three-year vesting schedule, the 50, 20, 30. No, sorry, 50, 30, 20. Screwed that up a bit. But that is a three-year vesting schedule where they get a lot of value very quickly. Now, sometimes the grants, like the volume, are a little lower because while the company is trying to attract people with this accelerated vesting schedule, they're then hedging by saying, we're going to give you a lower amount, a lower grant amount. It's an overall dollar amount. However, we do focus on annual refreshes. So we want to refresh the coffer. What this means is it sort of shortens this whole distance in the golden handcuffs where you're taking more equity off the table sooner, where then you can choose what to do with it. It's obviously going to be private company equity. There's now going to be longer extended holding periods or secondary markets. But then that company is then also going to understand based on your performance, do they want to be granting you more equity or not? So this is where I think it's a very interesting negotiation. This is something that you want to stay attuned to, especially as you're going in and negotiating for new offers. Just like public technology companies, private companies are focused on retention value. How do we provide more equity? My personal opinion is I have always found in private companies, because of the risk of the stock and not knowing when it's going to be liquid, there's more room to negotiate for more. And I would encourage you to put together a respectful counteroffer and try and move the needle 10%, 20%. Do your research, understand what's going on in the market. But if you know that they are giving retention grants around equity for people, try and understand what's happening in the market, where you're marked to the market so that you know your worth and you can be asking for that. I think the one that I love the most is there is going to be more education on private company valuation and also how private company equity works. That's music to my ears because it's so important that if you are enabling people, if you are empowering people to come in and say, I want you to be a part owner of my company, I want you to participate in the upside. They need to understand how this investment works because When, I'll tell you, when equity compensation works and it works well, and you have leadership that understands it and educates people towards it, and everybody who works for the company knows that every sale, every customer retention, every big milestone that they hit is benefiting all of them as the value of the company grows, you start seeing a a high performance culture, where everybody has each other's back, everybody is all in for the team moving forward. And everybody reaps amazing rewards. I've been a part of a couple of those stories. And it's so exciting. And so I believe that more education is better. I also think that people are going to ask harder questions. I know engineers and technology employees, very analytical. They're going to be asking a lot of harder questions of, you know, why do we have this valuation? What's the underlying reason? reason behind these numbers, but arguably those are great questions to ask because if they're prepared to ask to answer those in a private setting, leaders are, they're definitely going to be prepared to answer that in a public setting as well, preparing the company ready for a public launch. Ultimately, thinking about private companies staying private longer, what all of these trends represent is they represent the fact that companies have to remain flexible and creative if they want these employees that they're attracting and retaining to see the value in what they have to offer. The great news is that this machine has been in place and working, you know, since the late 1950s. So we're talking about a long period of time that we've had the opportunity to get tech equity, to attract and retain the best talent. This is not going anywhere because the companies that will have it will retain, attract and retain the best. But they're going to have to, from a private company perspective, get more creative. And I think the key interesting thing to me is number one, can they solve the liquidity problem? Can they start providing liquidity while the company is still private? I think that's going to be very exciting. That's going to start creating, you know, a very competitive environment because the one advantage working for a public company has right now is that liquidity. If they can solve that in the private company market. That's going to, then there's going to be a lot more opportunities open up and a lot of interesting upside that's going to open up from there. I think both sides of the table, public and private, this, this flexible vesting schedule where employees can get more equity off the table quickly and, and employers can then also provide smaller grants and understand how the employee is performing. And I think for everybody here, though, understanding that, as I spoke before in the last couple of episodes, that expertise, your expertise, the more you have it, the more you're going to be able to garner more equity. And so these skills-focused equity grants are really important. It was a big episode with a lot going on. Ultimately, I wanted to make sure that you are set up for 2025 as you're sitting here and you're planning your year. You right now are the CEO of your career. Ultimately, you want to be the CEO of your portfolio. If you listen to a couple episodes ago about the evergreen portfolio, but right now you're the CEO of your career. So it's so important to understand where are you going to invest your time and talent? Are you going to be working for the public company equity, where you're harvesting dollars off the table month over month, quarter of a quarter, maybe you're not getting the upside of the private equity, but you're reducing that risk, and you're able to then diversify that very quickly. Or Are you going to be working for that private company equity? Are you going to be taking more risk looking for more upside? If so, then you need to understand very clearly what is happening with your liquidity options and then also how you're able to get more educated and understand how private equity works. I'm excited that 2025 holds for technology companies and for employees like yourself. And I can't thank you enough for listening to this long into the episode. And if you are somebody who is trading your time and talent for tech equity, and you want to understand how you get to your exit from your W-2, I'd say stick around here at techequityandmoneytalk.com. We have you. This is what we're really focused on is looking around, grabbing case studies of people that have been there, done that. So you can learn from the astronauts, not the astronomers on how to get to the moon. And we also have tech equity and money news, our weekly newsletter that goes out Tuesday, 4 p.m. Pacific time. You can go and subscribe to that newsletter and you're going to get a framework every week. We also include some ongoing news of what's happening in and around stuff just like this. Thank you so much for tuning in this week and we'll see you next week. Bye.