Conducting a Retention Analysis Using Pave’s Unvested Equity Data: A Practical Guide

In today’s competitive talent market, employees leave jobs for a variety of reasons. Lack of career progression, poor management, and dissatisfaction with compensation are often cited as key factors that lead to turnover. However, if compensation is a concern for your employees, their unvested equity positions do not need to be part of the problem.

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Equity compensation is widely considered one of the most powerful tools for employee retention and, with a finite pool of shares, it's crucial to distribute it wisely. This requires balancing fairness with impact—ensuring that equity not only incentivizes the right employees to stay but also fits into your broader compensation strategy.

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This article will guide you through analyzing unvested equity data, identifying retention risks, and designing thoughtful strategies, while ensuring your equity is used efficiently.

Why Focus on Unvested Equity?

Unvested equity is a key piece of the puzzle when employees weigh competing job offers. Employees may be balancing the question of: “Do I have enough skin in the game to remain where I am, or can I get more elsewhere?” Here's why an analysis of unvested equity is critical for comp leaders:

• Predict Retention Risks: Large amounts of vested equity, or major upcoming vesting milestones, can lead to a crossroads for employees. As they accumulate vested shares, their holding power from unvested awards diminishes and their decision to stay or go becomes more complex. This makes it crucial to keep an eye on those events.
  
  
• Tailored Employee Retention Strategies: Having a clear view of employees’ unvested equity allows you to create targeted retention strategies that address individual risks to strengthen their long-term commitment. This is especially critical for longer tenured and key talent.

Looking Internally: Analyze Unvested Holdings by Profile & Tenure

Before turning to the broader market, analyze your internal state of affairs. Start by assessing employees’ unvested equity—in general, and broken down by tenure:

• What does the unvested equity profile of your employees look like? Overall, looking at your unvested equity profiles will help you uncover potential issues. Note that, while a good starting point, this macro view doesn’t consider some of the specific variables that typically impact your equity grants (e.g., role, level, equity philosophy). We’ll get into that analysis shortly.
  
  
• How do things change if we look at tenure? Layering in tenure gives a refined view. Long-tenured employees typically hold more vested equity, so they might be at greater risk of leaving after hitting significant vesting milestones.

Here are two examples of internal analysis:

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Current Distribution of Employee Population - Percent of Equity Vested

Average Percent of Vested Equity by Employee Tenure

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Looking Externally: Testing the Market on New Hire Grants & Unvested Equity Holdings

Once you have a solid understanding of your internal state, it’s time to look at the market:

• New Hire Equity Grants: Understand how the value of your employees’ unvested equity stacks up against what they could get elsewhere. Essentially, unvested equity translates to holding power—by comparing to new hire grants, you can see how much employees would be able to get in the market if they were to leave. This is where you can specifically compare your unvested equity profiles by level, role, or individual, and drill down to see where there are potential retention risks. This is also a good time to gut check that your own new hire equity guidelines are still competitive.
  
  
• Unvested Equity Holdings: Beyond comparing new hire grants, Pave’s data also allows you to view market data on total unvested equity holdings, as well as the amount that will vest in the next 12 months. This enables you to evaluate how your holding power compares to your competitors in both the near and long term.

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While your strategy should be primarily driven by internal factors, incorporating external benchmarks allows you to evaluate how your employees stack up against the broader market, ensuring your approach is both internally informed and market competitive.

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Here is an example analysis:

Creating Employee Retention Strategies for Critical Talent

For longer tenured folks coming up to a major milestone where they will be heavily vested, a top-up grant may be required to bring that unvested amount back above 1x a new hire award. Targeting ~1x a new hire award in unvested equity is typically considered to be a strong retention hold. 

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For critical talent, you might need a different approach and aim higher—perhaps 1.25x or even 1.5x. This will depend on various factors such as share availability and individual performance. Another option is to target a higher market percentile. For example, if your equity philosophy is typically targeted at the 75th, you could look at the 90th percentile instead.

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That said, we know as total rewards professionals that compensation often isn’t the crux of the problem. In some cases, granting more equity won’t prevent someone from leaving. It’s always crucial to understand an employee’s motivation to leave. If there is an option to ‘save’ them (though that in itself comes with caution) perhaps other non-monetary hooks will help—things like stretch projects, a path to promotion, or higher visibility with the leadership team.

Using Pave’s Unvested Calculated Benchmarks

Pave recently launched Calculated Benchmarks, a feature that uses machine learning to identify patterns across the dataset that can be used to provide more relevant, accurate, and timely equity compensation benchmarks. Using these patterns, Calculated Benchmarks then applies a series of regression models to generate reliable results in places where robust data is often lacking (e.g., job families with low incumbent counts or markets with smaller concentrations of talent). 

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This process, coupled with Pave’s unvested equity data, means that you have all the data you need to conduct your own robust analyses. Pave's real-time connection to market data for unvested equity enables companies to move from traditional, one-size-fits-all retention strategies to a customized, data-driven approach tailored to critical talent and at-risk employees. 

A Balanced Approach to Employee Retention

Unvested equity can be a valuable part of your retention toolkit, but it requires a balanced approach. It’s about strategically managing equity based on both top-down factors, like share availability, and bottom-up insights, such as individual employee performance.

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By analyzing your unvested equity profiles and tenure data and then comparing these with your compensation philosophy and market benchmarks, you can fine-tune your retention strategy to ensure critical talent stays engaged. Use your equity wisely, and it can significantly support your employee retention efforts while keeping your company competitive.