As the race to dominate the manufacturing of AI chips gains momentum among the top tech companies, a tool that has been in use for long at Silicon Valley has taken on a whole new role. ‘Golden handcuffs,’ a term referring to stock-based payment modalities that are vested over several years, have gained more prominence to boost the retention of key employees as talent poaching threatens the stability of innovative teams at companies.
These golden handcuffs increase the financial pain of an employee leaving the company since they will have to forfeit a significant portion of the vested stock included in their payment package. This tactic also makes it very costly, almost prohibitive, for rival tech firms to lure critical talent away from the competition since they will inevitably have to come up with a compensation package that makes it worthwhile for an employee to switch employers.
That barrier to employee mobility is especially strong at this time when the market capitalization of leading AI chips companies is rising spectacularly with no apparent end in sight. The vested stock can be worth millions, and that is a good enough anchor to keep engineers and key executives locked in place.
Broadcom, for example, has increasingly turned to golden handcuffs as a tool to ensure staff retention, particularly after it made acquisitions intended to add steam to its efforts to become a leading manufacturer of networking chips for the AI industry. AMD has also deployed this tactic to incentivize its innovative staff to come up with products that can compete favorably against chips made by the global manufacturing giants in this segment.
Do golden handcuffs work? Just look at how turnover rates are minimal at key tech firms and you will be left in no doubt as to their effectiveness. However, critics argue that this approach is sowing the seeds of burnout as employees are coming under intense pressure to meet relentless deadlines for chips with increasing performance metrics at shorter and shorter go-to-market timelines.
There is also concern that keeping employees locked in place and being unable to attract top talent from outside the company can create a kind of echo chamber where the impetus that would have been introduced by an external hire is lost.
It remains to be seen how global leaders in the AI chips market like Nvidia Corp. (NASDAQ: NVDA) will succeed in using stock-based compensation terms to strike a balance between minimizing talent turnover while also sustaining their leading edge in the industry over the long term.
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