Senior Client Partner, Global Technology Industry
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Take the Money and Run
A rising stock price is usually a cause for celebration. But the recent stock-market rally is creating unintended—and worrisome—consequences for leaders of some technology companies.
Over the last two months, as fears of a recession have waned, investors have sent stocks soaring. Last week, the Dow Jones Industrial Average closed at over 37,000 points for the first time ever; it’s up 12.6% for the year. The S&P 500 has performed even better, gaining 23% in 2023. The gains are still more pronounced in the technology sector, where the promise of generative artificial intelligence has driven up shares of some companies by 50% to more than 200%.
With equity serving as a key source of compensation for tech companies, the swelling share prices have made millionaires out of senior executives and even some middle managers with vested stock options. And that, in turn, has created productivity problems for leaders. At least one tech company CEO has had to address concerns that managers and executives holding large amounts of company stock are slacking off and entering “semi-retirement mode” until they cash out.
To be sure, if share prices keep rising, retention could become an issue, says Doug Maxfield, a senior client partner in the Global Technology practice at Korn Ferry. “Some companies could see an increase in departures of managers and executives,” he says, particularly those employees with vested options who believe they’re unlikely to rise higher in the organization. Put another way, after watching tens of thousands of colleagues get laid off over the last two years, tech executives flush with equity rewards may be tempted to take the money and run.
Retention and productivity issues are a problem many tech founders and leaders have had to confront as their firms move through the stages of growth, says Jamen Graves, global co-leader of CEO and Enterprise Leadership Development at Korn Ferry. “It is common to see decreases in effort as wealth creation from equity gains affords employees the opportunity to significantly change their lifestyles,” he says. Graves points to the recent exodus of mid- and even lower-level employees who became millionaires after two major tech players went public.
While tech leaders are the ones confronting the issue now, the impact of outsized share-price gains on productivity and retention could spread at any time to other industries with high levels of equity compensation. Experts say that’s why leaders across industries need to do a better job of helping employees see their work as valuable and purposeful, and not just as a means of getting money, says Dennis Deans, vice president of global human resources at Korn Ferry. Firms can provide challenges and opportunities for employees to contribute in bigger ways, he says. “Understanding the correlation between the career lattice and employee engagement is very important,” he says.
Maxfield also says not to underestimate how new flexible-work arrangements can keep employees productive, or at least encourage them to stay at the company. He says part of the reason people slack off and decide to cash out is because they are simply tired of the same old grind. “Helping employees work in the way that is good for them is also good for the organization,” Maxfield says.
Learn more about Korn Ferry’s Total Rewards capabilities.