{"id":2047,"date":"2017-08-15T09:06:42","date_gmt":"2017-08-15T16:06:42","guid":{"rendered":"http:\/\/springwaterwealth.com\/?p=2047"},"modified":"2017-08-15T09:06:42","modified_gmt":"2017-08-15T16:06:42","slug":"how-do-restricted-stock-units-work","status":"publish","type":"post","link":"https:\/\/springwaterwealth.com\/how-do-restricted-stock-units-work\/","title":{"rendered":"How do Restricted Stock Units Work?"},"content":{"rendered":"<div>A Restricted Stock Unit (RSU) is share of stock given to an employee as part of an overall compensation agreement.\u00a0 The stock is \u201crestricted\u201d in that the employee must meet certain service terms before the stock is \u201cvested\u201d and owned outright by the employee.<\/p>\n<p>Intel, a major electronics manufacturer, is one of many American companies that issues RSUs as a form of incentive compensation to its employees.\u00a0 The expectation is that the employees will be motivated to help the company meets its growth objectives.\u00a0 The hope is that the company\u2019s stock price will increase and both the company and the employee benefit.<\/p>\n<p>Intel typically grants RSUs after an employee\u2019s annual performance review.\u00a0 RSUs vest over a predetermined period. (Typically, three years in the case of Intel.)\u00a0 If, for example, an Intel employee received 300 RSUs, those units would vest in 100 increments over three years.<\/p>\n<p>When an RSU vests, it is considered compensation and taxed as ordinary income.\u00a0 As an example, let\u2019s assume that Intel stock is currently trading at $35 per share.\u00a0 At that price, 100 vested RSUs would represent $3,500 of taxable income.\u00a0 The employer will withhold estimated taxes \u2013 federal, state, Social Security and Medicare \u2013 by not distributing all of the vested shares.\u00a0 If we assume the total taxes are 25%, then $875 (25% x $3,500) would be withheld.\u00a0 This translates into 25 shares ($875\/$35).\u00a0 So, the employee would actually receive 75 (100 \u2013 25) shares.\u00a0\u00a0 If the employee were to immediately sell those remaining shares, she would receive $2,625 (75 x $35, net of all taxes withheld).<\/p>\n<p>One of the challenges associated with receiving employer stock as compensation is that the employee will often end up with a portfolio that is over-concentrated in employer stock.\u00a0 Sound investing requires diversification across and within asset classes.\u00a0 A portfolio which is overweight in a certain stock (e.g. Intel) and thus a certain asset class (e.g. US large cap value stocks) has an inferior risk\/return profile compared to a portfolio that is properly diversified.<\/p>\n<p>So, employees who receive employer stock should have a strategy to periodically sell vested shares and reinvest the proceeds in other investments, to maintain a diversified portfolio. This is often hard for employees, because of their loyalty to their employer, their reluctance to pay taxes upon the sale of the stock and inertia.<\/p><\/div>\n<div><\/div>\n<div>If you have questions about your RSU grants, contact your tax professional or financial advisor. \u00a0At Springwater, we&#8217;re here to help.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A Restricted Stock Unit (RSU) is share of stock given to an employee as part of an overall compensation agreement.\u00a0 The stock is \u201crestricted\u201d in that the employee must meet certain service terms before the stock is \u201cvested\u201d and owned outright by the employee. Intel, a major electronics manufacturer, is one of many American companies [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_mi_skip_tracking":false,"footnotes":""},"categories":[3,5,9,10],"tags":[66,86,87,116,123,132],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2047"}],"collection":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/comments?post=2047"}],"version-history":[{"count":0,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2047\/revisions"}],"wp:attachment":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media?parent=2047"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/categories?post=2047"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/tags?post=2047"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}