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Restricted Stock & RSUs: myStockOptions.com Newsletter No. 61 (June 2015)

IN THIS ISSUE

FAQ: At restricted stock/RSU vesting, should you sell shares immediately or hold them?
FAQ: What happens to restricted stock and RSUs upon disability or death?
Articles on restricted stock, RSUs, and performance shares
Engaging videos about restricted stock and RSUs
Research shows continued growth in the use of restricted stock grants and performance shares
Modeling tools for restricted stock
CE course on restricted stock, RSUs, and performance shares


SPONSORS OF THIS ISSUE

Think Twice insider trading prevention videos: Entertain your employees and executives while you educate them about compliance (see the ad below)

AdvisorFind Directory from myStockOptions.com: Search this resource for financial, tax, and legal advisors with experience in stock compensation (see http://www.mystockoptions.com/match and information below)

myNQDC.com: Developed for both participants and professionals, a complete online resource about nonqualified deferred compensation plans (see the ad below)


EDITOR'S WELCOME

This issue of our quarterly newsletter showcases some of our award-winning content on restricted stock, restricted stock units, and performance shares. Below you will find information about FAQs, articles, podcasts, and videos that give a taste of our expertise on this and every other topic in stock compensation. For much more, click through to our main content section on restricted stock and RSUs and the related parts of the Tax Center. Thanks for reading!

We are celebrating 15 years since our launch! The equity compensation world has substantially changed since we launched myStockOptions.com in 2000, but we are still going strong as a trusted resource. Thank you for using myStockOptions.com and for your support and feedback over the years. If you do not yet subscribe to Premium or Pro Membership, giving full access to our content and tools, please check out the many valuable resources available to Premium Members and Pro Members. All of our content and tools are also available for licensing.

NEW FEATURE! Now you can take a piece of our expertise wherever you go with our new free app for iPad/iPhone and Android: Stock Compensation Glossary. For details, see our full description of the app.

Don't want to wait for our quarterly newsletter updates? The myStockOptions.com Blog is the best way to stay on top of equity compensation news and the latest developments at our website. You can also follow us on Twitter.

We hope you enjoy your summer!

—Bruce Brumberg (Editor-in-Chief)


FAQ: My restricted stock will vest soon. Should I sell the shares at vesting or hold them?

When restricted stock, restricted stock units, or performance shares vest, whether you sell or hold the shares depends on various factors. Some of are under your control.

  • Taxes. Shares can be a source of the proceeds needed to pay taxes at vesting, whether through tax withholding, mandatory share surrender, or net share settlement.
  • Tax planning. Whether you hold the shares and for how long will affect your capital gains tax at sale. Any holding period after vesting does not affect the amount of income tax due for the value of the shares at vesting.
  • Your cash needs, upcoming life events, and other financial-planning factors, including diversification, dividends paid on your stock, and alternative investments.
  • Whether your company is publicly traded or privately held. At public companies, be aware of blackouts when you can't trade or stock ownership/retention guidelines that require you to keep a certain amount of company stock. In a privately held company, you will not be able to sell the shares immediately at vesting because of restrictions that are likely to exist in your grant and/or because of the SEC rules on resales.

Calculations in the Restricted Stock & RSUs Comparison Modeling Tool on myStockOptions.com can help you decide. If you are not comfortable with making these decisions on your own, discuss strategies with a financial advisor. This is particularly useful if you are thinking about holding the stock at vesting and company shares represent at least 10% of your net worth.

Alert: You should confirm that you have certified an IRS Form W-9 or Form W-8BEN for the account with your brokerage firm or transfer agent. If it does not have this form, you will be subject to backup withholding on the sales proceeds.

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FAQ: What would happen to my unvested restricted stock or RSUs if I were to die or become disabled before the vesting date?

The treatment of unvested restricted stock and RSUs upon death or disability depends on the terms of your stock plan and the specifics of your grant agreement. In its 2013 Stock Plan Design Survey, the National Association of Stock Plan Professionals revealed the related practices of the companies in its survey group. The top two treatments upon death or disability are the following:

Stock plan treatment Death
(% of companies)
Disability
(% of companies)
No awards are forfeited (vesting accelerates on all unvested awards) 53% 44%
All unvested awards are forfeited 21% 24%

See the full FAQ for more survey data on how companies handle restricted stock and RSUs in these situations.

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Articles On Restricted Stock, RSUs, And Performance Shares

Below we list just some of the articles about restricted stock and RSUs in the award-winning content of myStockOptions.com. Our extensive articles and FAQs on restricted stock and RSUs are joined by related videos, podcasts, an interactive quiz, and a self-study course and exam for CFP and CEP continuing education credits. All of these are available with Premium or Pro Membership or through corporate licensing.

Why You'll Learn To Like Restricted Stock Grants by Richard Friedman

Podcast included! Your company may no longer be using stock options. Instead, it may be granting restricted stock, restricted stock units, or performance shares. While these grants don't carry the same upside as stock options, they have benefits you will surely appreciate once you understand their special features.

Restricted Stock 101: Five Essentials Of Restricted Stock & RSUs by the myStockOptions Editorial Team

While restricted stock and RSUs are relatively straightforward, they have technical aspects you must understand to make the most of them. Learn the essential facts of restricted stock and RSUs, including basic concepts, vesting schedules, and tax treatment.

Restricted Stock Units Made Simple (Part 1): Understanding The Core Concepts by the myStockOptions Editorial Team

Restricted stock units (RSUs) have become the most popular alternative to stock options. While RSUs share many of the same issues as restricted stock, there are differences, and it is important to understand the basics of RSUs in their own right. This article is available free!

Restricted Stock Units Made Simple (Part 2): Taxation by the myStockOptions Editorial Team

The taxation of RSUs generally resembles that of restricted stock but carries some important differences, as this article explains.

Restricted Stock: Tax, Financial, Estate, And Retirement Planning (Parts 1 and 2) by Richard Friedman

Podcast included! Understand financial planning for restricted stock and RSUs. Part 1 discusses the growing popularity of these grants, their special features, and the related tax planning. Part 2 covers complex issues in financial, estate, and retirement planning.

Restricted Stock Versus Stock Options: Making A Rational Choice by Alan B. Ungar

In a growing trend, your company may let you choose between stock options and restricted stock. Which is better for you? Learn techniques to analyze your financial situation and goals so that you can make the right choice. Part 1 compares and contrasts the basic traits of restricted stock and stock options. Part 2 provides a method of analysis to help your decision-making.

Stockbrokers' Secrets: Restricted Stock And Performance Shares by W.E.B. Bantling

For many employees, receiving restricted stock, restricted stock units, or performance shares adds a new layer of complexity to their equity compensation. This article presents six common questions the author hears from his clients.

Performance Shares by Bruce Brumberg

Many companies now make stock grants that base your gains on more than just your continued employment or an increase in stock price. As companies take a "portfolio approach" to stock compensation, you may be granted performance shares, which you receive only upon the achievement of specified goals. Part 1 explains the basics of performance share grants. Part 2 explores their structure in depth, along with the concept of expiration and the impact of job termination. Part 3 explains the taxation of performance share grants and then goes on to discuss the special tax considerations that arise in corporate mergers and acquisitions.

Decisions At Grant With Restricted Stock by Tom Davison

When your company grants you restricted stock, it promises to let you keep a set number of shares on a particular date in the future. The stock becomes yours if you still work for the company on the vesting date. In the typical case, you do not pay for the shares. Part 1 presents what you need to know at grant and the decisions you can make. Part 2 discusses the risks of the Section 83(b) election. Part 3 explains ways to analyze your alternatives.

Decisions At Vesting With Restricted Stock by Tom Davison

Vesting is another crucial time for making decisions about your restricted stock. Part 1 explores what tax-withholding method to use, whether you should hold or sell the stock, and what account to keep the shares or cash in after vesting. Part 2 looks at key vesting decisions.

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Restricted Stock/RSU Videos At myStockOptions.com Offer An Engaging Way To Present Basic Concepts And Taxation

Stock plan professionals are always seeking new ways to make stock plan education easier for busy, work/life-juggling employees. This partly explains the current surge of interest in the use of video for stock plan education and communications. At myStockOptions.com, we have a pair of lively, professionally produced video presentations on restricted stock and RSUs.

In Restricted Stock & RSUs (Part 1): Key Aspects To Know, Editor-in-Chief Bruce Brumberg presents the fundamentals of restricted stock and RSUs to help stock plan participants make the most of these grants. The coverage includes key concepts, such as vesting schedules and understanding a grant's value. Running time: 4:37

In Restricted Stock & RSUs (Part 2): Taxes And Related Key Decisions, Bruce explains the basic tax treatment of restricted stock and RSUs, including the tax rates, the timing of taxation, and withholding. Running time: 3:57

At myStockOptions.com, these videos appear in the sections Restricted Stock: Basics and Restricted Stock: Taxes. By enticing viewers into the subject of their equity comp, the videos provide a helpful gateway to our more detailed content on the related topics.

We welcome your comments on the videos, which exist alongside others on ESPPs and stock options. As with much of our content, our videos can be licensed and customized by your company.

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AdvisorFind Directory
Find a financial, tax, or legal advisor with experience in stock compensation

Stock compensation raises many questions.

  • When should you exercise stock options?
  • How can you minimize your tax bill?
  • Should you sell or hold restricted stock at vesting?
  • How can you diversify your company stock holdings?
  • How do you negotiate for stock compensation in your employment agreement?

While myStockOptions.com is a good place to learn about concepts, issues, and general strategies, at some point you may need an advisor to help with your unique situation. Yet finding a good advisor can be hard when you are busy and don't know where to start. The AdvisorFind Directory from myStockOptions.com is for you.

  • Identify and contact an expert who can provide specialized professional guidance on equity compensation.
  • Search for advisors by geographical area, type of advisor, years of experience, minimum portfolio size, and other key criteria.
  • Look up resources for performing background checks on advisors.

Searching AdvisorFind is free and does not require registration at myStockOptions.com.

New Surveys On Stock Compensation: Trends Show Continued Growth In Restricted Stock And Performance-Based Grants

The editorial team at myStockOptions.com keeps up with the numerous equity comp surveys that are routinely conducted by research and consulting firms. New details about LTI trends among CEOs and senior executives can be found in recent commentaries by Steven Hall & Partners and Towers Watson. Using data from current proxy statements, they found the following:

  • According to Steven Hall & Partners, LTIs (both equity awards and long-term cash incentive payouts) represent 57% of compensation and have increased by 5%.
  • According to Towers Watson, target LTIs (long-term performance plans are most prevalent) increased by 7.1% in 2014. Three quarters of the companies use a mix of long-term vehicles (two thirds of them combine performance plans with either options or restricted stock, while a third use all three types of grants).

Meanwhile, Meridian Compensation Partners recently surveyed 114 companies to uncover their LTI practices. For senior executives, 82% of the sampled companies used two or three types of long-term grants. For grants to employees at lower levels, it is more common to just use one type. Among its findings on stock compensation, Meridian discovered the following about the prevalence and weight of LTI vehicles for executives.

Type of award % of companies Performance awards (dollar weight in total LTI value) Stock options (dollar weight in total LTI value) Restricted stock (dollar weight in total LTI value)
Performance awards, stock options, and restricted stock 25% 43% 31% 26%
Performance awards and restricted stock 45% 60% 40%
Performance awards and stock options 8% 47% 53%
Stock options and restricted stock 4% 56% 44%
Performance awards only 11% 100%
Restricted stock only 5% 100%
Stock options only 2% 100%
Overall (averages) 100% 53% 16% 31%

More Survey Data At myStockOptions.com

At myStockOptions.com, we routinely cite compensation and HR surveys to illustrate our discussions of trends in equity comp usage and stock plan design. Several of our FAQs are regularly updated hotbeds of survey data that will interest stock plan professionals. Below are just some of them.

What do surveys and examples reveal about the effects of expensing, stock market trends, and other developments on equity compensation?

Do surveys show how employee stock purchase plans are changing with mandatory expensing and other developments?

What types of company goals are most commonly set for performance shares and units? What do surveys show about the performance metrics and periods that companies use?

Why do companies grant stock options, restricted stock, and other equity awards? Do employees really value them?

How common are stock options, restricted stock, performance shares, and ESPPs outside the United States? Do surveys show trends?

Do companies grant stock options or restricted stock to directors? Any survey data on director grants?

Any survey data on stock grants in privately held companies?

Can my company set ownership guidelines for company stock? Any survey data about their use?

Premium Members of myStockOptions.com have access to all of this content. They can also use our myLibrary feature to get a helpful email alert whenever FAQs with survey data have been updated with new information.

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Nonqualified Deferred Compensation: myNQDC.com, A Complete Online Resource For Participants And Professionals

Tax-rate increases and the new Medicare surtax have boosted the popularity of nonqualified deferred compensation. From the award-winning publishers of myStockOptions.com, myNQDC.com features articles, FAQs, a glossary, podcasts, interactive quizzes, and a calculator, all to help you, your clients, or your executives understand and make the most of nonqualified deferred compensation.

  • Clear explanations of NQDC by experts
  • Financial planning, taxation, risks, job loss, and legal issues, along with core concepts
  • Appeals to plan participants, plan providers and administrators, financial advisors, attorneys, and companies with NQDC plans

For companies, education and communication are vital for ensuring NQDC plans work properly to motivate and retain vital executives, directors, and key employees. Companies can license our educational content and tools for websites, print materials, newsletters, and presentations.

For more information on myNQDC.com, including its prestigious advisory board, see the About Us section of the website, and please contact us by phone (617-734-1979) or email (info@mystockoptions.com).

Modeling Tools For Restricted Stock And RSUs

Easy to use and secure, the tools for financial and tax planning at myStockOptions.com can help you make smart decisions with your restricted stock or RSUs.

To learn more about all of the features in these award-winning online applications, see the myTools page at myStockOptions.com.

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CE Course On Restricted Stock, RSUs, And Performance Shares

The myStockOptions.com Learning Center has courses of study and exams offering continuing-education credits for Certified Equity Professionals (CEPs) and Certified Financial Planners (CFPs). The course on restricted stock, RSUs, and performance shares features articles, FAQs, videos, and a podcast from myStockOptions.com on all aspects of these grants. They are woven into a dynamic, interactive learning tool that teaches the topics in a memorable way. In the exam that follows the course, the answer key also links to relevant content on the site for further reading and learning.

Other courses offered through the Learning Center focus on nonqualified stock options, employee stock purchase plans, SEC law for stock compensation, and financial planning with equity awards. In total, the courses in the Learning Center can provide up to 20 continuing education credits for CEPs and 15 credits for CFPs.

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