Stock Vesting For Employees in Companies
Being the senior executive of a company isn't a small deal, in fact, when a company succeeds it is attributed to the executives and when it is not successful, the blame goes to the executives especially the Chief Executive Officer. So when CEOs are paid really high, I do not think it is really a negative thing but have you ever thought about how much CEOs are paid?
Alphabet's CEO Sundar Pichai receives $2M as salary annually, at least that was what he made in 2020 according economic times but then Sundar Pichai earn $281M annually in compensation according to bloomberg. The salary is paid in cash but then what is his compensation paid in? STOCKS.
It has become a norm to pay higher ranking officers of public offices as well as executives in stocks, Amazon does this so well [source glass door] but how will this not affect the company's stocks? So how do companies reduces the risk of employees selling off their stocks real fast?
Stock Vesting
This is the process of locking stocks for a particular period of time thereby preventing the sell off of stocks by holders. There are two types of stock vesting, the Time based vesting and the Milestone base vesting. Both vesting procedures are effective and most companies uses time based vesting which often comes with a clause that says the employee is still working with the company for a minimum of one year or depending on the agreement of the company, sometimes it could be 5 years especially for CEOs and major Executives.
With Milestone based vesting, the company determines when the executive sells off the stocks depending on a particular event such as the market capitalization milestone, and so on. Companies often require vesting so they can be able to accumulate enough money to buyback the stock when employees start to sell them.
