The pandemic was good to Daniel Springer. The chief executive of Docusign, whose electronic signature software became a lifeline amid Covid shutdowns, saw his pay more than double last year to $20 million (£15 million). Nearly all of that lucre was in the form of company shares, which peaked in September at $310.
It has been all downhill since. A brutal tech market sell-off that began in November saw Docusign shares tumble to $74 this month after it fell short of Wall Street’s earnings forecasts. Springer has admitted he was caught out by the violence of the slowdown. But he must also contend with a more urgent problem: unhappy workers. “Sorry Docusigners who joined at the height,” read a post by a user on Blind, an anonymous message board where workers can compare notes on compensation. “You don’t have other way [sic] than changing jobs to make more money.” Another wrote: “Easily disrupted company. Stay away.” Even after a rally in tech stocks this month, Docusign shares traded Friday at $104.55 — two-thirds off their September peak.
Silicon Valley’s reliance on shares is what fuels the industry, allowing everyday employees to make millions. However that dynamic also imbues the sector with a mercenary element, where workers are always seeking to get into the next hot company — or to jump ship before the old one crashes.
Indeed, a young engineer can easily pull in $500,000, of which, say, half could be in shares. A steep stock price fall thus translates into a huge pay cut. The stock market rout has brought this reality to life in vivid detail for thousands of tech workers. From mid-November to mid-March, the Nasdaq composite lost a fifth of its value. Even after the March surge, many of the pandemic darlings such as Peloton, Facebook, Pinterest and Shopify are wallowing between 60 per cent and 75 per cent beneath their recent highs.
For those companies, the stakes are high. “It’s like musical chairs right now,” said one recruiter. “Companies are freaking out because there is already a scarcity of talent. Lose too many good people and you risk falling into a death spiral.”
Advertisement
That realisation has led to a mad dash to keep talent from fleeing. Options range from issuing new stock grants to simply writing cheques to make up for the lost value. Amazon recently doubled the base salary for corporate staff to $350,000. Network giant Cisco responded to a 50 per cent increase in attrition last year by offering more generous cash bonuses in lieu of stock, which has fallen 15 per cent in three months.
The scramble sets the stage for a showdown with investors who, in many cases, will be asked to approve new share-based compensation plans that will dilute holdings already deeply underwater.
“A sudden drop in the stock price creates a huge retention challenge,” said Jun Frank of ISS Corporate Solutions, which advises companies on compensation. “But if there is a perception that executives and employees are paid well when the company does well, and when the stock goes down and company doesn’t do well, they still get paid while shareholders take the hit, there will be pushback. You need a very compelling story to tell as to why you need more equity.”
The battles will play out in the coming weeks as companies publish their plans and ask investors to sign off at their annual meetings.
Dan Ives, an analyst at Wedbush Securities, said the shakeout had shades of the 2001 tech implosion, when high-flying companies crashed, leading to talent drains that made it even harder for them to recover. Many didn’t.
Advertisement
“There’s a bifurcation in tech between the haves and the have-nots. Some of these companies, as well as employees, are going to face the harsh reality that some faced in 2001, where a lot of the good news is now in the rear-view mirror,” Ives said. “Some of these companies are gonna have to sell with their stock down at 75 per cent or 80 per cent. Others will go away.”
Companies typically set aside an allocation of stock, say 5 per cent of the total, to retain talent and to hand to new recruits. Typically, when workers are hired, they receive a package of shares near the current price, which then vests quarterly over four years.
Yet when faced with, say, a 50 per cent share price drop, suddenly you need twice the shares to offer the same package to a new recruit The stash dwindles, forcing the company to ask investors to create a bigger pool, watering down their holding. Investors are already surly after 2021 when they were asked to rejig compensation plans at countless companies walloped by Covid.
Last year saw a record 20 defeats of “say on pay” executive pay votes, including at giants like Intel, Starbucks and General Electric. Equity plans, aimed at rank-and-file employees, did not see a similar surge in rejections, though this year could prove different.
Ukraine has destabilised markets, but tech stocks seem to have been caught in a run-of-the-mill market correction. Frank said: “A once-in-a-generation pandemic is much more justifiable to make unusual manoeuvres or one-time adjustments.
Advertisement
“A market correction where simply your stock price is not doing as well as it did in 2021 won’t be a compelling enough justification.”
How companies fare will come down to resources and planning. Canny executives who raised warchests when times were good will, at worst, be able to simply write bonus cheques to workers.
An executive at a public tech company that has seen its shares plunge 80 per cent said his board recently approved an aggressive pay deal. Under the scheme, workers hired in the back half of last year will receive cash payments equal to 90 per cent of the difference between what they expected to receive in stock and where the stock ends up for the year.
“It’s a good deal,” he said. “We’re so concerned about losing people right now because it would be the worst time to lose people. We’re just growing so fast. We’re already having trouble hiring.”
Indeed, the market meltdown has been indiscriminate. Investors are not giving credit to fast-growing start-ups, especially those that have not yet broken into the black, the way they were even six months ago. And that dynamic is playing out for private companies as well.
Advertisement
Stripe, the online payments company, is America’s most valuable private start-up at $95 billion. The shift to e-commerce, even as it has slowed, has fuelled strong growth. Yet Stripe’s shares, in which there is a thriving secondary market, trade at the same price as they did a year ago, said Barrett Cohn, founder of Scenic Advisement, an investment bank specialising in selling shares in private companies. “That company is probably growing 50 per cent year over year, but the multiple compression affecting the public markets is hitting it, too,” he said.
Some workers will take the long view. A Meta employee queried in a recent post on Blind whether he should leave, as he joined when the stock was at $360. Meta shares traded Friday at $220.52.
A poster responded: “I joined [chip company] Nvidia in 2018. A few months later stock dropped by 50 per cent. My total compensation had dropped to $250k. I had an offer from Google at the time for $310k. Decided to stick it out. Thanks to getting [stock] refreshers at a low and subsequent stock growth, I now make $1M per year. Think long term.”
When it comes to money, most people are not long-term thinkers. And even if they are, the onus is on faded stars such as Docusign to convince workers that their loyalty will be rewarded.
After its earnings miss this month, Wedbush pronounced the “demise of the Docusign growth story” and slashed its price target from $200 to $80.
Advertisement
Springer has ploughed millions of his own cash into Docusign’s shares as a show of faith. He may be in the minority.