The Wealth Effect Blog

Over the last several decades, employee equity has become a much larger part of employee compensation. Although not limited to tech companies, it has become especially popular among private and public tech companies to align employee incentives with that the company's performance of the company. The rationale is that if employees are compensated in company equity, their equity value will improve over time as employees are incentivized to maximize their company equity through greater work performance. Through equity compensation, employees have more "skin in the game," so to speak, concerning the company's performance.

Last week, one of the largest single value destruction events occurred in market history. As a result, many investors might be asking why, or even how, did this happen?

When it comes to employee compensation, many tech companies provide equity and stock-based benefits to their employees. The intention behind this kind of stock-based compensation is to align the performance interests of the employee with the employer. One common form of equity-based compensation from publically traded and late-stage private, VC-backed tech companies are restricted stock units (RSUs).