The Spotify pick and mix incentive program – because you know what’s best for you
At Spotify, long term incentive programs have always been part of the compensation mix. We want every single Spotifier to have a chance to own a piece of the company, so employee stock options have always been part of the mix for everyone, because that’s who we are. Another aspect of our culture is that we expect our employees to be autonomous; We like to provide direction, give choices and make information available, instead of creating policies and heavy administration. We expect people to own their own growth plan. So when we set out to update our long-term incentive program, we were going for maximum flexibility, allowing each individual to choose their own incentive mix.
What’s a perfect program?
There has been a lot of research done on what incentive programs work best. Lots of surveys where people ask people what they would like, in the quest for creating the perfect program. But people are different. Some are young, some are older. Some have or plan for kids, some don’t. Some want to buy a home and some plan to live in a camper van and surf on a different continent all next year. People value equity and cash differently. So each person has a different answer to the question “what’s your perfect incentive program” and we want to attract and retain all kinds of great people. Our solution was to stop trying to create and promote a perfect program and just let everyone choose their own mix. That way, everyone gets a program that fits them personally, and we get a better return on our incentive investment.
How we stopped being averagely pleasing
We started trying the new model out in small scale in 2017 when we introduced a limited choice model where current employees who got a re-grant were able to choose between stock options and cash for their grant. It worked out really well, so for the 2019 program we expanded to all employees who got grants (new hires and current employees alike), and we added more instruments to choose from. Each eligible employee now gets a grant amount in US Dollars, and they allocate it themselves between different types of employee stock options, cash, and RSUs (Restricted Stock Units), which all vest on the same schedule. We even have a choice for those who prefer not to choose, the default package with a mix of options and RSUs!
We obviously can’t advise people on how to choose, but we provide information, booklets, examples, and calculators so everyone can find their own way based on who they are, how long they plan to stay with us, and how they believe our share price will develop.
The program has been very well received by both candidates and employees, they seem to prefer individual choices over an averagely pleasing program. It’s too early to analyze the attraction and retention data but one, slightly surprising, bonus effect is that we get significantly fewer questions and support tickets on the program now than we did for the previous no-choice programs.
If you talk C&B, this is what we did
We made all the program information available in a digestible format for the eligible employees and candidates because not everyone is a stock exchange whiz. If you, however, prefer Compensation & Benefits lingo and want to read the details you can see exactly how we do it here:
Before granting, we communicate a dollar incentive allocation to the employee. The employee can mix ATM ESO, OTM ESO, RSU & Cash. All instruments with similar life, vesting schedule and T&C. The span of risk and rewards is wide and should allow most people to find a mix they are motivated by. We built in some rules, primarily to make the choosing easier but also avoid creating a complete mess on the backend. Currently, we allow 17 different combinations. Process-wise, our HR system pushes out a choice module (yes, that can happen before someone’s first day). The candidate/employee then has around a week to pick and mix, enter their choice, and sign off the T&C in the system. Then we push the data to the equity system for individual accounts and execution.