Laid-Off Airbnb Employees Lost Mountain of Canceled Stock

Companies cancel some amount of stock awards each year, as employees and executives leave firms before all their shares vest or without exercising their stock options. But the value of Airbnb’s canceled stock awards for the first nine months of 2020 was about 27% higher than the amount that Uber, the second-highest total, canceled in its yearlong run-up to its 2019 IPO.

The layoffs mostly hit employees who worked in less lucrative, nontechnical roles such as customer service, sales and marketing. Airbnb spared most software engineers, designers and product specialists, who are generally given higher-value stock compensation packages.

One laid-off employee who worked in the trust and safety group in Airbnb’s Portland, Ore., office estimated he forfeited about $25,000 of equity, or half of what he expected to earn over his time at the company. He had been hoping to remain at Airbnb long enough to cash out all his stock awards, which he would have used for a down payment on his first house. He said managers often motivated employees by referencing the equity they could build up by working hard.

“We said, ‘We want to be here. We want to build equity in the company because we believe in the mission,’” said the former employee, who spoke on the condition of anonymity because his severance package required him to not disparage Airbnb. “We were the first to be let go,” he said of the nontechnical staff.

Wouter Witvoet, CEO of Secfi, which provides financial tools to startup employees, said many employees Airbnb laid off were likely newer hires whose shares hadn’t had a chance to fully vest. Some worked on Airbnb’s new initiatives, like hotels or flights, which were abandoned amid the pandemic.

“Airbnb can teach us it’s not only important what function you have, but where you sit in the organization,” Witvoet said. New initiatives are more likely to be killed in the event of a downturn, he added. “It leaves you more susceptible to be laid off and lose your equity.”

Airbnb was one of several companies that made significant staff cuts in the spring because of pandemic-induced revenue declines, only to take advantage months later of the booming stock market by going public.

Real estate company Opendoor, mobile gaming firm Skillz and car insurance startup Metromile laid off workers in the spring before announcing plans to go public this year, all via special purpose acquisition company mergers. Opendoor reported it had canceled about $31 million of stock awards this year. It laid off 600 employees, or 35% of its staff, in April.

While frustrating for the former employees who lost out on potentially lucrative stock, the cancellation of stock awards is standard practice and is unlikely to change, said Christine McCarthy, a partner at law firm Orrick who advises tech firms on compensation plans.

“It’s a little bit of ‘That’s the way the system works and the compensation is set up.’ The opportunity to earn more is dependent on you continuing to provide services,” she said. “It’s always compounded and more difficult when there are layoffs, and Covid has had a massive impact.”

Early Airbnb employees are poised for a significant payday from the IPO. Employees who joined the company in early 2012—three years after the company first raised venture capital—would have been awarded stock options with an exercise price of $1.30 a share, a person familiar with the matter said. An award worth $100,000 then would be worth $4.5 million today, using the midpoint of the company’s tentative IPO price range.

More-recent hires, who were granted restricted stock units, have seen less appreciation of their equity. The fair-market value of the stock awards stood at $63 a share in spring 2019, above the tentative IPO midpoint. RSUs don’t require holders to pay to exercise the stock.

The large dollar value of the canceled stock awards also stems in part from the high per-share price of the unvested equity. Two firms out of the 20 analyzed, Pinterest and DocuSign, reported a higher percentage than Airbnb of outstanding shares that were canceled in the year before their IPOs. It wasn’t clear why that was the case for those firms.

Airbnb did take steps to ensure that new employees who lost their jobs got at least some equity. CEO Brian Chesky told employees in May that laid-off employees who had been at the company less than a year would still be able to vest an initial batch of stock, even though employees would typically have to wait until the one-year mark before any shares would vest. “Everyone departing, regardless of how long they have been here, is a shareholder,” he wrote then. The company also offered laid-off employees a minimum of three and a half months’ severance.

In addition to the layoffs, more Airbnb employees left voluntarily this year than is typical after the company temporarily discontinued its bonus program over the summer. That likely led to additional canceled awards.

The vast majority of Airbnb’s canceled stock awards this year were RSUs. The company has issued that type of award, rather than stock options, to employees since 2014.

Airbnb has said it would allow employees to sell some shares before a typical six-month lockup period. Current and former employees whose shares vested should have plenty to sell. The company said in its prospectus that $2.7 billion of RSUs would vest in the IPO, meaning that employees had been at the company long enough to amass those shares.

The canceled equity will help Airbnb reserve more of a stake for future shareholders. The number of stock options and RSUs canceled—11 million shares—represents about 2% of the company’s outstanding share count at the time of the IPO, which is scheduled for Thursday. The company said in its IPO prospectus that canceled unvested equity would be available for future issuance.