Two Big Financial Factors to Consider Before Switching Tech Jobs
If you work in tech, you may feel it is time to make a move. Whether you feel drawn to a stronger opportunity, frustrated with your current role, or simply ready for a change, switching jobs can feel exciting. Before you decide, consider two important financial factors to help weigh the risks and rewards.
1. What Are You Leaving Behind?
The first factor involves understanding what you give up when you leave your current employer. What is the dollar value of unvested incentive stock options (ISOs), nonqualified stock options (NSOs), restricted stock units (RSUs), or restricted stock you would forfeit? If unvested equity represents a meaningful portion of your net worth, leaving that value behind deserves careful consideration.
The past several years in tech produced an unusually favorable environment where wealth accumulated quickly. That kind of period does not last forever. Stock grants earned during these cycles may prove difficult to replace. Maintaining perspective can help you appreciate the value of equity you already hold. While tech stock prices may be down today, they could recover or decline further over time, depending on company performance and broader market conditions. Waiting for a recovery may help you avoid the disruption and career risk that can accompany a job transition.
Before making a move, consider running financial planning scenarios to assess how a change may affect longer-term objectives, such as reaching work-optional status. Evaluate how removing unvested equity may impact the Monte Carlo success rate of your financial plan.
The Monte Carlo success rate summarizes a wide range of modeled potential future outcomes into a single indicator. If excluding unvested stock significantly lowers that probability, remaining in place may align better with your goals. Alternatively, you may believe future opportunities could replace or exceed that value. That leads to the second factor.
2. What Are You Going to Get?
At a minimum, a new role should offer the potential to replace the value of equity you leave behind. Ideally, it may provide greater long-term upside. Review the full compensation package carefully and estimate its total value. Consider the company’s stage of growth and the forms of equity compensation offered, such as ISOs, NSOs, or RSUs.
If you move between publicly traded companies that issue RSUs, comparisons become more straightforward. You can evaluate current stock prices, unvested shares remaining, and shares offered by the new employer. One key difference often involves a reset of the vesting schedule. You may wait longer before shares vest and become available for sale. Estimating long-term stock appreciation at both companies also matters, though doing so accurately can prove difficult.
Comparisons become more complex when evaluating a startup opportunity. The number of shares listed in an offer letter offers limited insight. Instead, focus on the percentage of the company those shares represent. For example, if your fully vested equity equals 0.2% ownership, you can multiply that percentage by a projected company value to estimate potential outcomes. If the company ultimately reaches a $500 million valuation, that stake could equate to $1 million before accounting for dilution, liquidity constraints, or tax considerations.
A startup’s stage of development can also affect long-term value. Each financing round typically dilutes ownership as new investors add capital. Early-stage companies often require multiple rounds of funding, and dilution continues over time. The expectation is that company growth offsets ownership dilution.
Because startup outcomes depend heavily on future execution, it helps to think like an investor rather than just an employee.
You will also want to review equity grant details closely. Many startups issue ISOs rather than RSUs. One feature to look for involves the ability to early exercise options, meaning you can purchase shares before full vesting. Early exercise can offer potential tax advantages in certain situations, though it can also involve significant risks and tax consequences.
Given the complexity of evaluating compensation from a new employer, building financial planning scenarios using different stock value assumptions can help define the range of possible outcomes. Comparing Monte Carlo success rates before and after a job change may help illustrate how different assumptions affect modeled outcomes.
While financial considerations are not the only factors in a career decision, they play an important role. Job satisfaction matters, but understanding what you give up and what you gain helps you make informed choices. The decision ultimately comes down to whether the net result moves you closer to your financial and personal objectives.
Savant Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you would like help evaluating a job offer or understanding equity compensation considerations at a new employer, schedule a complimentary consultation.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Bruce R. Barton
Managing Partner / Financial Advisor
CFP®, CFA®, MBA