It is an exciting moment for any skilled future employee of a startup or tech company: The signing of an employment contract and the discussion of how the future employee will be compensated for the work they do for that company.
The discussion of compensation types is of increasing importance in San Diego County and the greater Southern California area. While the world of startup and tech culture is best known as part of Northern California’s Silicon Valley, San Diego has seen a startup and tech renaissance since the beginning of the COVID-19 pandemic in 2020. Even tech giants in the area such as Qualcomm, Amazon, Google, and Apple are increasing their manpower in the area. The question for every potential skilled employee is now: How will I get paid?
Let’s go back to basics: What is compensation?
Traditionally, and for many California residents, compensation is limited to a cash salary, paid as W-2 or 10-99 income, and perhaps a small cash bonus around the holidays.
With the increase in demand for skilled workers in California, however, potential employees can now demand a proportional increase in their compensation. But cash flow for a business is not limitless, and the compensation demands are not always in line with a business’s financial bottom line. So companies have needed to become creative in their methods for compensating skilled workers.
In addition to incentive-based cash bonuses, companies have turned to non-cash forms of compensation in the form of equity compensation – discussed herein.
Equity compensation is a form of non-cash compensation that gives an employee a financial and legal interest in the company they work for. This equity is in the form of stock shares in the company.
Equity compensation for skilled employees comes in several different forms, but two are of ongoing importance in dissolutions involving spouses who are employees of startups or tech companies: Restricted Stock Units and stock options.