NEW YORK, July 11 (Reuters) – ByteDance, the Chinese owner of short video app TikTok, will allow shares owned by U.S. employees to vest without waiting for the company to list on the stock market, allowing them to cash out, according to people familiar with the matter.
The move is aimed at appeasing restless employees who have been waiting for an initial public offering (IPO) to cash in on the shares they have been awarded as part of their compensation.
It’s also an indication that ByteDance, whose valuation of more than $200 billion makes it the world’s most valuable startup, is in no rush to go public amid Beijing’s heightened scrutiny of China’s tech giants.
ByteDance will now allow restricted stock held by U.S. employees to vest as long as sufficient time has passed, the sources said. The company has previously set a “liquidity event”, such as an IPO or company sale, as a condition for vesting to occur, the sources added. When the shares are vested, the employees can be exchanged for cash in one of ByteDance’s buyback programs.
The employees were informed of the changes on Tuesday, the sources said. A spokesperson for ByteDance confirmed that the company has changed the rules for stock vesting, but declined to comment on the details.
“Our goal is to provide competitive rewards to our employees. We announced an internal solution that will make our US-based employees eligible to participate in future stock buyback programs,” the spokesperson said.
The move affects ByteDance’s US employees, which includes around 7,000 TikTok employees.
The change in the rules has a disadvantage for some employees, the sources said. Vesting of the shares will now be considered a US taxable event, even for employees who have not sold their shares, according to the sources. The employees will have to pay the tax out of their own pockets or sell some of their shares to meet this expense, the sources said.
Cutting the link between earning stock and a company going public is known in the startup world to remove the “double trigger,” and can come with a hefty tax bill. Payments processor Stripe, which is waiting to go public, used part of the proceeds from a $6.5 billion fundraising round earlier this year to cover the tax costs for itself and its employees associated with removing the double trigger.
ByteDance started share buyback programs for employees globally in 2017, and had most recently launched one in April, according to the sources. These programs were not previously available to US employees who did not own fully vested shares.
The company plans to launch a new buyback program in the fourth quarter of 2023, the sources said.
Employees own 20% of ByteDance, while 60% are owned by global investors and 20% by the founders.
The US employees have faced increased political and regulatory scrutiny due to US concerns that ByteDance may share TikTok user data with Chinese authorities.
TikTok, which is used by more than 150 million Americans, insists that it “has not shared, and will not share, US user data with the Chinese government, and has taken significant measures to protect the privacy and security of TikTok users.”
Although it has so far been spared a proposed federal ban, TikTok faces a challenge in Montana. The White House has banned TikTok on government-issued devices.
Reporting by Echo Wang in New York Additional reporting by Krystal Hu in New York Editing by Greg Roumeliotis and Anna Driver
Our standards: Thomson Reuters Trust Principles.