Restricted Stock & RSUs: myStockOptions.com Newsletter No. 57
|IN THIS ISSUE|
Top 10 questions to ask about your restricted stock/RSU grant
Important decisions to make before your grant vests
Articles on restricted stock, RSUs, and performance shares
New videos offer an engaging way to teach restricted stock/RSU basics
Research shows continued growth in use of restricted stock grants
Watch out for noncompetes in restricted stock/RSU grant agreements
Modeling tools for restricted stock
CE course on restricted stock, RSUs, and performance shares
SPONSORS OF THIS ISSUE
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NASPP Annual Conference: The 2014 installment of the premier event for stock plan professionals features four days of critical and timely sessions, September 29–October 2 in Las Vegas (see the ad below)
myNQDC.com: Developed for both participants and professionals, a complete online resource about nonqualified deferred compensation plans (see the ad below)
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 FAQs, articles, and an engaging new video 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!
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—Bruce Brumberg (Editor-in-Chief)
|FAQ: What are the top 10 questions I should ask about my grant of restricted stock or RSUs?|
You should know the answers to the following questions. Understanding the topics involved will help you make the most of your restricted stock/RSU grant and prevent costly mistakes.
2. Is formal acceptance of the grant required? What happens if I don't accept the grant before vesting?
3. What is the vesting schedule?
For the other five crucial questions to answer, click through to the full FAQ. In addition, you should understand the tax treatment, the reporting on your Form W-2 (whether for restricted stock or RSUs), and the related tax return reporting. This website's Tax Center covers all tax topics involving stock compensation.
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|FAQ: My restricted stock will vest soon. What must I do and decide?|
You have some decisions but fewer than you would with stock options, which prompt a decision about exercise timing and, if you hold the shares, require cash for the exercise and taxes. By contrast, restricted stock and restricted stock units do not impose these decisions as vesting approaches. Earlier, you may have had to accept the restricted stock/RSU grant, though that is not as common as with options.
Open A Brokerage Account
Before the vesting date, you will have to open an account with the brokerage firm or transfer agent that your company designates. At vesting or share delivery, the shares are then electronically deposited into your account from the transfer agent.
Alert: It is important that you open an account, as your company may have a policy of not delivering shares unless you have done so. You should also complete either IRS Form W-9 (for US tax residents) or IRS Form W-8BEN (for nonresident aliens) to avoid backup withholding.
The setup needed for this account may be all online, or you may need to send a paper document with your signature to the firm. At some brokers, your company may be able to establish an account for each plan participant, and then you merely need to accept yours.
You will owe taxes on the value of the shares at vesting, when the shares are delivered into your account. At least for federal tax purposes, the withholding is required to be at the rate for supplemental wages (usually 25%, though it is 39.6% for aggregate amounts above the level of $1 million during a calendar year). In addition, there will be Social Security tax up to the yearly maximum, along with Medicare (plus any state and/or local taxes on this type of income).
You will need to decide how you will provide the taxes that must be withheld. The choices may include using cash, selling enough shares to cover the taxes (a sell-to-cover), or share withholding (i.e. some of the shares are held back for the taxes). Your company may have a mandatory withholding method, in which case you don't have to make a decision, or it may have a default that it will use if you do not elect your withholding method by the deadline.
To read the rest of this answer, including an introduction to the planning decisions you must make after vesting, click through to the full FAQ.
|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 also joined by a podcast, 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.
Restricted Stock 101: Five Essentials Of Restricted Stock & RSUs by Matt Simon
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.
New Tax Act And Medicare Surtax: Impact On Stock Option And Restricted Stock Strategies by Alan B. Ungar
The American Taxpayer Relief Act and the Affordable Care Act introduced tax-rate increases you need to consider in deciding how to plan around income from restricted stock/RSU vesting. This article explains the changes in tax law and suggests strategies for minimizing the new taxes.
Tax Planning For Options, Restricted Stock, And ESPPs After 2013 Tax Law Changes: High-Income Taxpayers Impacted Most (Parts 1 and 2) by Tom Davison and William Whitaker
The beginning of 2013 brought notable shifts in tax rates for people at higher income levels. Part 1 surveys the important tax changes and considers their impact on planning. Part 2 looks at planning strategies involving capital gains rates and considers general ideas related to income-shifting.
Restricted Stock: Tax, Financial, Estate, And Retirement Planning (Parts 1 and 2) by Richard Friedman
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.
Stockbrokers' Secrets (Part 8): What I Tell My Clients About Their 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.
Restricted Stock Units Made Simple (Part 1): Understanding The Core Concepts by Matt Simon
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!
Decisions At Grant With Restricted Stock (Part 1): Tax Fundamentals 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. This article series presents what you need to know at grant and the decisions you can make.
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|Engaging New Videos Entertain While Teaching The Basics Of Restricted Stock & RSUs|
Always moving with the times, we have begun to add engaging, professionally produced videos to complement our articles, FAQs, quizzes, podcasts, modeling tools, and other forms of educational content. Our first major effort, Restricted Stock & RSUs: Key Concepts To Know (4:36), presents the fundamentals of restricted stock, restricted stock units (RSUs), and performance share to help you make the most of these grants. Part 1 covers key concepts, such as vesting schedules and understanding your grant's value.
Coming soon, Part 2 will cover taxation, including rates, withholding, and important decisions to make (Restricted Stock & RSUs: Taxes & Key Decisions).
We welcome your comments on the videos. As with much of our content, our videos can be licensed and customized by your company (contact us at email@example.com).
|Research Shows Continued Growth In The Use Of Restricted Stock Grants|
After many years of catching up on stock options, restricted stock and restricted stock units (RSUs) are now the most commonly used types of equity award. In its 2013 Domestic Stock Plan Design Survey, the National Association of Stock Plan Professionals (NASPP) found that "time-based restricted stock grants/awards and performance awards have both surpassed stock options in prevalence," in the words of the survey's executive summary. "Restricted stock/units are now the most commonly used award among companies regardless of industry and at all employee levels (81% of companies). Restricted stock units are the most common form of full value share awards (77%)."
For its 2014 Equity Trends Report, the compensation research firm Equilar looked at trends in the stock-based compensation footnotes of proxy statements to examine stock grant practices at 1,345 companies in the S&P 1500 from 2009 through 2013. Like the NASPP, Equilar observed a striking acceleration in the ongoing shift from stock options toward restricted stock, RSUs, and performance shares:
- In 2013, 34.7% of the surveyed companies granted only restricted stock/RSUs, up from just 20% in 2009.
- The percentage of companies granting only stock options fell from 10.7% in 2009 to 4.3% in 2013.
|Year||Restricted stock only||Options only||Both|
Other findings by Equilar include the following:
- The use of performance share grants continues to grow: 68.9% of the surveyed companies granted performance awards in 2013.
- In 2013, 79.7% of all performance share grants were long-term performance awards. In both long-term and short-term plans, the most common performance-related vehicle was performance share units (61.8% of all performance-related grants).
- In 2013, 23.7% of all performance-based grants included time-based vesting restrictions after the performance periods. The most common post-performance period was two years of additional vesting.
For additional data on changing stock grant practices, see the related FAQ. See also our article series on trends in corporate stock grant practices as reflected by the data in the NASPP's 2013 Domestic Stock Plan Design Survey.
|Watch Out For Noncompetes In Restricted Stock/RSU Grant Agreements|
In Newell Rubbermaid v. Storm (Del. Ch. March 27, 2014), the Delaware Court of Chancery granted a company a temporary restraining order against a former employee for actions that appeared to violate the noncompete, nonsolicitation, and confidentiality covenants of the company's RSU agreement with the employee. The RSU agreement, to which the defendant assented and which the company sought to enforce, was a so-called "clickwrap" agreement. This is an online agreement that requires webpage visitors to affirmatively assent to the terms of a contract by clicking an "accept" button to proceed, along with a checkbox for confirming the statement "I have read and agree to the terms of the grant agreement."
Other courts may follow the Delaware court's lead and enforce all remedies set forth in a restricted stock award agreement, including remedies that go beyond simply the forfeiture of the stock award, such as an injunction against a former employee from working for a competitor. For a discussion of Newell Rubbermaid v. Storm and other lessons to be drawn from it, see a new article at myStockOptions.com: Watch For Noncompetes And Other Restrictive Covenants In Stock Grant Agreements.
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.
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 (firstname.lastname@example.org).
|Modeling Tools For Restricted Stock & RSUs|
The various tools for financial and tax planning at myStockOptions.com can help you make smart decisions with your restricted stock or RSUs.
- Track your grants in the myRecords portfolio-tracker and get email alerts about imminent vesting dates.
- Perform "what if" modeling with your stock price and tax rates in the Quick-Take Calculator for Restricted Stock.
- In the I Need The Money Tool, you can set a cash goal for your grants and then determine whether you can reach it now or in the future.
- The Restricted Stock Comparison Modeling Tool can help you decide whether to hold or sell the shares after vesting. The tool (similar to our patented modeling tool for stock options) lets you explore whether you may be better off holding the shares or selling them for an alternative investment.
|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, and a podcast from myStockOptions.com on all apsects 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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