In this episode of Equity Compensation Guidebook, we are going to be tackling something that on its surface isn’t super-complex but I feel it’s important enough to receive some spotlight attention and a more detailed explanation. As you can probably tell from the title, I’m referring to RSU’s, or restricted stock units. Restricted stock and restricted stock units are— as the annoying saying goes— “the same, but different” so we will cover RSU’s in this episode and restricted stock in the next, so be sure to tune into both. Now, let's dive into the details, including taxes, which I know is everyone's favorite topic. <insert eyeroll>
You will want to hear this episode if you are interested in...
A simple definition of a restricted stock unit? [0:54]
The life of an RSU [1:48]
The tax talk I warned you about [3:24]
RUS’s pushing you into a tax bracket you’re unprepared for [5:56]
This week’s FLASHBACK [8:21]
What is an RSU and how to get them?
A restricted stock unit is a right to receive stock after you've satisfied any conditions imposed by your employer. The conditions can be working for a company, for a certain amount of time, or hitting a sales goal. If you meet the conditions, you get the shares, if not, well, then you do not get them. That's the simplest definition I can give you.
The life of an RSU
It may not sound as exciting as a trip to the Bahamas in the middle of a northern winter, but it’s more profitable! It all starts with when an employer awards you with a set number of restricted stock units on what is called a grant date. Sounds like the beginning of a fairytale, right?
As part of this award, your employer will also provide you with a document that lays out all the rules and guidelines for the RSUs. KEEP THIS IN A SAFE PLACE. This document includes the requirements that you’ll need to satisfy in order to earn and take ownership of the RSUs. These are called vesting requirements, and they have vesting dates associated with them. The requirements are usually related to performance goals. Vesting time periods come in two forms. Cliff, all of the RSU’s at once or graduated, where they will vest on a schedule over a period of time. For more on this be sure to check out the show!
This week’s FLASHBACK: My first CD (and I’m not talking certificate of deposit)
Compact disks or CD’s, are still my preferred way to listen to music, even if I no longer have an awesome stereo rack with a 5 disk changer, ahhh the good ol’ days! I remember my first CD purchase. I had just bought a stereo system with the earnings from my high school job. I went to the music store at the mall for one purpose— to get my first CD. I grabbed the 2 disk hits album called “Hot Rocks” by none other than the Rolling Stones! It was packed with my favorites from 64’-71’ and I couldn’t get home fast enough to play it and see if it was worth all the hype. Let me tell you...IT WAS!
Resources & People Mentioned
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.