Ever wonder what would happen if you completely overhauled your equity compensation amid one of the biggest market declines in recent years? That’s exactly what Charlie and Supriya Bahri, VP of Total Rewards at Roblox, chatted about in Compa’s latest webinar.
We’re grateful to Supriya for sharing in such detail the challenges her team faced during 2022’s peak market turbulence and the changes Roblox made to optimize its equity comp for the long run. Read our recap and full transcript below, or revisit the recording here.
Roblox’s main comp principles
It’s a challenging market for everyone, especially for compensation folks tasked with setting equity strategy. When asked about compensation goals and philosophies that help position Roblox as an employer of choice, Supriya highlighted three: (1) be market competitive; (2) maintain consistency and fairness; and (3) pay for performance. Ultimately, these principles help drive retention while upholding Roblox’s responsibility to shareholders.
On the note of consistency, Supriya shared that Roblox maintains formulaic compensation, while holding their leaders accountable for outcomes.
Challenges with equity in a traditional comp system
While compensation can take many forms, from traditional to more innovative, two components remain universal: cash and equity. A shift in April 2022 prompted Roblox to rethink its equity compensation. Supriya outlined the company’s previous comp structure:
- No bonuses, since Roblox believes in “taking the long view”
- Cash comp is in base salary
- Equity comp was a classic four-year grant (starting annually in April)
- Additional promotion equity grant
When the market dipped mid-2022, and Roblox had wrapped its previous cycle, Supriya and team decided the traditional comp structure wasn’t going to work. They faced three major challenges: (1) the size of new hire grants was significantly higher than market peers, risking dilution; (2) refresh grants lacked resilience to stock price fluctuations; and (3) due to the market decline, actual new hire grant value was much lower than intended.
The four levers of equity comp
Charlie asked how Roblox reconciles its “long view” approach with short term market shocks, to which Supriya supplemented with context of our unique current market: how inflation and interest rates have gone up, and yet the talent market remains strong. With this in mind, Roblox considers four levers that impact its equity compensation:
- Length of grant: Shorter (meaning less near-term dilution) or longer (meaning more employee upside if stock price appreciates)
- Vesting schedule: How often vesting occurs (and if front-loading or back-loading)
- Refresh frequency: Annually, quarterly, or monthly
- Refresh start: The best point to minimize drop-off after new hire grants are exhausted
On the note of vesting, Roblox, after months of exhaustive modeling, identified a “sweet spot” between one-year and four-year schedules: a three-year schedule, which was neither too short nor too long. Even though a front-loaded approach is ideal in minimizing drop-off after new hire grants are exhausted, Roblox stayed with equal vesting over the three year schedule to provide ease of understanding to employees and candidates. This new plan, as Supriya noted, also requires a level of maturity from employers to educate employees on equity.
From comp analyst to comp scientist
Charlie ventured to ask: “Should the average comp analyst know how to write code?” Supriya’s take was that we’ve “maxed out” Excel and Google Sheets, and that the Roblox comp team is actively working to upskill across Python, Jupiter, and other tools. While spreadsheets have limitations, the goal isn’t to retire them — it’s to supplement, and expand on, traditional methods. And if there’s any team within HR or People that’s capable of performing analytics, it’s the comp team.
Criteria for comparing equity plans
As part of its comprehensive modeling, Roblox compared equity plans against five primary criteria:
- Dilution impact: Minimizes dilution for shareholders
- Retention: Leaves sufficient unvested equity at the end of years two and three such that employees are less likely to leave
- Spike and cliff-drop minimization: Minimizes spikes and cliff drop-off that occurs when new hire grant ends and refresh grant payout still in process
- Price resilience: Adjusts quickly to stock price volatility
- Simplicity: Is easy to implement and understand
Supriya shared that her team applied a “best fit” methodology to landing on a new equity plan, and that some criteria rendered quantitative data while others rendered more qualitative results (i.e. sliding scale).
Time to “refresh”: Where Roblox landed
When Roblox landed on a new equity program in July 2022, it focused on two key components: new hire grants and refresh methodology. Supriya outlined the new structure, now optimized for market volatility:
- Transitioned from four-year to three-year new hire grants at reduced value
- Introduced quarterly refresh grants on a three-year vest
Admittedly, the Roblox team was concerned about cutting back its new hire grants. While acknowledging the risk, its recruiting team reassured Supriya and her team that a three-year approach wouldn’t deter candidates — and it didn’t.
Similarly, quarterly refresh grants presented a new learning curve, but one worth hurdling. A quarterly schedule gave Roblox the opportunity to link refreshes more closely to performance reviews, which occur twice-yearly.
Charlie opted to summarize Supriya's remarks, highlighting a new dimension Roblox added to its equity comp in grant frequency. Essentially, by splitting up an annual grant throughout the year, Roblox offset any market volatility by smoothing out stock price at time of grant and eliminating issues with timing of eligibility, both of which can feel arbitrary and unfair to certain employees. And while it may sound complex, Roblox’s new equity comp plan was seen by employees as intuitive, with its market timing mechanics and personal link to performance in shorter cycles.
- Are all employees at all levels eligible for the new program in place at Roblox? Yes.
- How frequently does Roblox review its refresh targets with a quarterly cycle? Once a year. If we see any offer acceptance issues in certain jobs, we review it mid year, and we make adjustments as needed.
- To what degree has the cliff drop-off issue been resolved? Though not completely resolved, the drop-off has been minimized as much as possible, and the only way to do this is with a front-loaded vesting schedule. And the feedback we received is that simplicity is important.
- How is performance factored into the grant value? Is it formulaic or manager’s discretion? We ended up being about 98% formulaic. There are exceptional situations in which you need to apply a little bit of discretion. But if there are two people with the same performance rating for the same job, the same level, and the same location, then you could have identical numbers This is how we achieve pay equity.
- How do you handle very early employees who have outsized grants from their peers, but are still up for refresh? Those people who joined early took a massive risk of not joining a publicly listed company and getting refreshed year after year. And for a long time, they did not see an annual compensation that was large enough compared to some of their peers in publicly listed companies. So, absolutely, if they have those outsize grants, that is the reward for the risk that they took.