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This is because if the stock goes way down, and you are 1 year into your 4 year vest, then you can leave the company, and get a high compensation package somewhere else.
Do you understand how this makes it so you have free downside protection, from those other 3 years, because you can leave and get the high salary somewhere else, if the stock crashes?
There's no advantage to RSUs. Cash is better in every way, because, at worst, you can invest it in the exact same allocation that your RSUs are invested in. Any gain from them rising in price could have been realized by investing cash. Any loss from them falling in price is a real, not a paper loss. [1]
I'll take $100 of cash over $100 of RSUs any day. I probably wouldn't take $80 of cash over $100 of RSUs, though.
[1] Unless for some weird reason, you are accounting your personal finances, where a 4-year stock grant is realized in year 1. If you are doing this, you should stop, because it is not an accurate way to do accounting.
You still dont understand. Let me work this out for you, year by year.
Lets say that the stock grant is 25k a year, over 4 years. But there is a 50% chance, after year 1, of the stock doubling and staying there, and a 50% chance of it going to 0. IE, it will be worth 50k or 0$, which is an expected value of 25k.
So you have 100k of stock, and 25k vests on year 1.
Situation 1: you win the coin flip, and the stock doubles. Your 25k that you received, is now worth 50k. BUT, you now have an ADDITIONAL 150k that is unvested. The unvested stock has increased in value! If you stay for 3 more years, you get 200k in total.
Total value: 200k, over 4 years.
Now, lets look at situation 2.
In situation 2, the stock crashes to 0, after 1 year. Your 25k vest, is now worth 0$. As is, the next 3 year vest is also worth 0.
But here is the trick. What you do now, is that you quit your job. You do not stay at the company for 3 more years, to get the 0$ of stock. Instead, you get different job with stock that vests at 25k a year.
Total value: 0$ for the first year, + 25k/year at job 2. Which equals 75k.
Do you see how this is different?
You absolutely could NOT get the same value as this, if you were paid in cash. Because if you were paid in cash, then you would realize the full losses of situation 2.
> Any gain from them rising in price could have been realized by investing cash
No, actually. In situation 1, I receive 200k, and in situation 2 I receive 75k, because I am protected by the downside risk, by the fact that if the stock crashes to 0, I can leave the company and get my salary higher again.
This is not possible by investing 100k from the beginning.
Once the four year vesting cliff is done, though, the annual top-ups aren't much different from cash (Because if the stock inflates fantastically, you will get fewer RSUs next year).
