By nearly all accounts, when Uber laid off 7,000 people in May, the severance package it gave employees was a generous one: at least 10 weeks of pay, health care until year’s end and other benefits.
For instance, Uber paid employees an extra lump sum if they were about to have a tranche of restricted-stock units vest within three months had they not been terminated, as long they signed waivers and non-disparagement agreements.
Tech companies like Uber include stock compensation as part of an employee’s total pay package. Often the amount of stock is negotiated when an employee first joins the company. An employee may even take less cash salary and more stock, which then vests over a number of years, typically four. So as employees contribute to the company’s overall success and the stock price rises, employees can earn more on the stock than on their other pay.
Dozens of employees qualified for this extra payment, according to an analysis of the public list of laid-off employees, and possibly more people qualified than we could find on the list, because participation on that list is voluntary, and doesn’t include all the people who were laid off.
Uber paid these employees about $27 for each share of stock.
Yet some employees were not happy about this payment because of the method Uber used to come up with the $27/share price.
Uber calculated the average price across the month of April, a point in time when COVID-19 had ransacking the travel industry and the stock was down but starting to inch back up. Uber conducted the layoffs in May and left everyone on the formal payroll for a month, until June 17, source say, aka four weeks of garden pay.
If it had used May’s average share price, or even the days before employees were formally off the payroll, those employees would have be paid about $32 a share.
For some people who were due to have a large tranche vest, those couple of bucks per share added up to thousands of dollars, one person told us.
“Due to pandemic, the entire stock market sold off in March and April, so that was an artificially deflated value. They are choosing a value to pay least amount,” one former employee told us.
Uber did not offer the option of early vesting, allowing employees to keep the stock instead of a cash payment. This person feels that it was like forcing employees to sell shares at a loss or get nothing, on top of losing their jobs during a pandemic.
Uber confirmed the RSU payout was based on the average closing stock price for the month of April and says using the prior month has been its standard for layoffs for practical reasons, so the company can determine the total payout amount in advance when it issues the severance agreement papers.
The interesting thing is that companies typically have no obligation to do anything about unvested stock during a layoff, says Mary Russell, attorney and founder of Stock Option Counsel, an employee stock-option specialist in Palo Alto, California.
Employee stock compensation tends to be “survivor-style.” If a person’s employment ends prior to the vesting date for any reason including a layoff, the employee typically has no rights to the shares unless those rights were negotiated in advance, she says.
So Uber offering any payment on unvested stock could be seen as another way Uber was being generous to its employees, an effort to enrich its reputation as a good employer, another former employee believes.
So, why are some people upset about it? Russell believes it’s because equity compensation is complicated and based on an idea of “fairness,” she says. “I mean, it’s in the name: equity. It’s about building something that makes people feel a part of.”
On top of that, a lot of tech companies really play up the stock compensation part of the pay package.
“There’s so much room for misunderstanding. You have a recruiter making promises and a hiring manager and HR talking about equity. When there are layoffs, you have that [layoff] team talking about equity. Yes, there’s money involved, but also a sense of fairness,” she says.