If you are amongst the top talent where you work, you are either thinking of ways to increase your remuneration or are considering what other similar companies can offer you for your expertise. Well, employers know this too well. For this, they come up with compensation plans that entice their valuable employees to stick around for longer. One such plan is the Restricted Stock Units (RSU). What are restricted stock units and, are they worth your time in the company? Let's explore below:
Restricted Stock Units (RSUs) are additional compensation given to employees in the form of company stock. Corporations like Microsoft, Apple, and Amazon use RSU stock to attract and retain talented employees and executives. Note that the employees do not own the restricted stock units. Instead, it is a promise companies make to their employees to give them RSU stock upon completion of a set vesting period.
The vest date is the basis for calculating your tax liability arising from the RSU stock. Hence, should you opt to sell your shares, the market value of all your shares is treated as extra taxable income. It means the extra income shall be subject to payroll taxes and income tax.
Is your employer offering restricted stock units as part of your compensation plan? Should you hold, sell, or diversify? Well, unless you have some financial background, the jargon around how RSU stock works can be confusing. It is prudent that you work with a professional advisor such as GCD Advisors, who can elaborate on what you have and the best action you can take when handling your restricted stock unit planning.
As an experienced financial advisor, we can help you determine the implications of what you want to do when:
Our main goal is to provide the best money management tips and investment management strategies to help you improve your financial wellbeing.
Most corporations offer employee compensation plans as RSUs or stock options. A stock option plan is an arrangement corporations make for their employees to purchase equity in the company at a determined price (strike price) within a specified window of time. Unlike RSU stock, the employee owns the shares offered in a stock option plan.
2. Do I need a stock option plan?
Note that employees have no obligation to enter into stock option plans with their employers. Still, it can be a smart decision, considering that the strike price is usually a discounted version of the value of the stocks when hiring the employee. If the company is doing well, the stock prices shall rise, resulting in additional income for the employees when exercising their options.
3. Which is better; RSU or stock options?
Choosing between RSU stock and stock options is a matter of personal preference. Ultimately, both employee compensation plans have their pros and cons as follows:
Employees incur no cost when getting RSU stock. In turn, as long as the shares have a value, regardless of how low it is, RSU stock will always be a pure gain to the employees. In contrast, stock options are only valuable if the market value of the shares continues to appreciate after the grant date. That way, the employee will sell the shares at a higher price than the grant price. For this reason, many companies prefer offering fewer RSUs and more stock options to their top talents.
Most employees and executives receive RSU stock as part of their sign-out package or annual compensation review. If your employer gives you an RSU or stock option plan, and you have no clue what to do about them, contact us and we will guide you on everything you need to know.