So, I have options
April 11, 2011 5:18 PM
I recently received approximately ~$10k worth of restricted stock that vests evenly over the next several years. I've been with the company one year and it's my first job out of college. Could someone provide some insight into 'stock options' as compensation tool?
I recently received approximately ~$10k worth of restricted stock that vests evenly over the next several years. I've only been with the company (Fortune 500) for a year and it was my first job since graduating. Obviously, the restricted stock has a vesting period in order to tie my compensation to the company's performance, as well as a way to retain me as an employee.
How common is it to give 'new' (I wouldn't quite say 'entry-level', since I have a decent track record and skillset, but close to it) employee restricted stock in a large company? My understanding was that it pretty much never happens in my company, and I'm the exception.
I'm not looking to toot my own horn, I just want to understand this compensation practice--after all, I don't actual have the reward in cash. Do all managers or high-value employees get stock options/restricted stock? Do key employees typically get options every year? Should I expect this again as a part of my compensation--assuming I do exceptional work--or was it a one-time thing?
Really appreciate the insight, as I have no one else to ask these questions to.
I recently received approximately ~$10k worth of restricted stock that vests evenly over the next several years. I've only been with the company (Fortune 500) for a year and it was my first job since graduating. Obviously, the restricted stock has a vesting period in order to tie my compensation to the company's performance, as well as a way to retain me as an employee.
How common is it to give 'new' (I wouldn't quite say 'entry-level', since I have a decent track record and skillset, but close to it) employee restricted stock in a large company? My understanding was that it pretty much never happens in my company, and I'm the exception.
I'm not looking to toot my own horn, I just want to understand this compensation practice--after all, I don't actual have the reward in cash. Do all managers or high-value employees get stock options/restricted stock? Do key employees typically get options every year? Should I expect this again as a part of my compensation--assuming I do exceptional work--or was it a one-time thing?
Really appreciate the insight, as I have no one else to ask these questions to.
Very tough to say. It varies from company to company. Several large companies give stock every year to most employees. Some do it only to key employees, but that could be 2 people or 20%.
It's certainly a preferred method for retaining employees since, as you note, you have to stay with the company to get the full amount. It's like a pre-announced bonus, so it's more about keeping you happy and with the company than a bonus which is a reward for work done (of course, if they weren't happy with your work they wouldnt want to retain you).
tl;dr -- basically it's hard to say whether it means you're especially valuable to them or not. At the very least it indicates they would like you to stay with the company, and probably that they think you might have other options. Depending on the rarity of this in your company, it would indicate varying strengths of these thoughts.
posted by wildcrdj at 5:34 PM on April 11, 2011
It's certainly a preferred method for retaining employees since, as you note, you have to stay with the company to get the full amount. It's like a pre-announced bonus, so it's more about keeping you happy and with the company than a bonus which is a reward for work done (of course, if they weren't happy with your work they wouldnt want to retain you).
tl;dr -- basically it's hard to say whether it means you're especially valuable to them or not. At the very least it indicates they would like you to stay with the company, and probably that they think you might have other options. Depending on the rarity of this in your company, it would indicate varying strengths of these thoughts.
posted by wildcrdj at 5:34 PM on April 11, 2011
Oh, and I know it's standard compensation because we sometimes discuss changes in the company's stock price in the office, if you're looking for a sneaky way of figuring out how common it is for your coworkers to own company stock. I'd tread lightly on that one though.
posted by animalrainbow at 5:34 PM on April 11, 2011
posted by animalrainbow at 5:34 PM on April 11, 2011
So I can only answer based on my own, single-company experience.
At my company nearly everyone gets RSUs. As in, not the receptionists, but petty much everyone else. But I work for an unusual company. Note that RSUs are not stock options and are treated slightly differently, although if they're regular RSUs and not incentive RSUs then it all basically turns into regular income for tax purposes at the end. Consult a tax professional for actual advice.
In terms of how it works I was granted a fixed number of shares that vested over 4 years. So the incentive is that if the share price goes up, my "bonus" effectively goes up, although I also have the option of just holding the shares. In my case taxes are withheld by selling part of the stock grant when each tranche vests so I don't personally deal with extra tax paperwork, but your situation may be very different - if they just hand you all the shares, there will be tax due on that amount. I expect that they're required to do withholding like a regular bonus though.
In terms of more grants, typically you won't be eligible for more RSUs until your existing package is fully vested. If you get promoted then there may be an additional grant. If you get middling performance reviews they may not give you another grant once this one is fully vested.
posted by GuyZero at 5:35 PM on April 11, 2011
At my company nearly everyone gets RSUs. As in, not the receptionists, but petty much everyone else. But I work for an unusual company. Note that RSUs are not stock options and are treated slightly differently, although if they're regular RSUs and not incentive RSUs then it all basically turns into regular income for tax purposes at the end. Consult a tax professional for actual advice.
In terms of how it works I was granted a fixed number of shares that vested over 4 years. So the incentive is that if the share price goes up, my "bonus" effectively goes up, although I also have the option of just holding the shares. In my case taxes are withheld by selling part of the stock grant when each tranche vests so I don't personally deal with extra tax paperwork, but your situation may be very different - if they just hand you all the shares, there will be tax due on that amount. I expect that they're required to do withholding like a regular bonus though.
In terms of more grants, typically you won't be eligible for more RSUs until your existing package is fully vested. If you get promoted then there may be an additional grant. If you get middling performance reviews they may not give you another grant once this one is fully vested.
posted by GuyZero at 5:35 PM on April 11, 2011
I don't think it's unusual in general for new employees to be offered RSUs--of the companies whose RSU-granting habits I know, most of them grant RSUs to basically all employees. Your company may be different, of course. What does often happen is the more senior/high up on the org chart/valuable to the company you are, the higher the percentage of your compensation is equity.
posted by phoenixy at 5:47 PM on April 11, 2011
posted by phoenixy at 5:47 PM on April 11, 2011
My employer, a defense contractor, does not offer RSUs to any of their engineers as far as I know.
posted by garlic at 6:05 PM on April 11, 2011
posted by garlic at 6:05 PM on April 11, 2011
Regarding your question whether you will get another RSU plan next year. Generally no. From my experience, company don't give overlapping multi-year RSU plan; but you can expect another RSU plan in another 4 years, when this RSU is fully vested.
Regarding popularity of RSU, I got them right out of college, both as a sign-in bonus and as part of regular compensation. Also, when my company was bought, every employee in the (now) sub-division get RSU along with signing the new employment contract.
I think you should feel good about getting more compensation; and remember to cash out every time it vests (if that's what you want to do - some people like to diversify the investment; but from my experience, my company RSU out perform the market, so I did lost out on some gain by cashing out).
posted by curiousZ at 6:05 PM on April 11, 2011
Regarding popularity of RSU, I got them right out of college, both as a sign-in bonus and as part of regular compensation. Also, when my company was bought, every employee in the (now) sub-division get RSU along with signing the new employment contract.
I think you should feel good about getting more compensation; and remember to cash out every time it vests (if that's what you want to do - some people like to diversify the investment; but from my experience, my company RSU out perform the market, so I did lost out on some gain by cashing out).
posted by curiousZ at 6:05 PM on April 11, 2011
Yes, it's not unusual for every employee and all new hires to get stock in some form of other. But there can be a lot of variation between companies on exactly how and how much stock is given out.
It's worth reiterating that restricted stock are not stock options, they're real actual stock that you're given for free. As such they are really just like a cash bonus in the form of stock. That's why you're liable for income tax as soon as they vest. You're pretty much guaranteed to make some money from your restricted stock. However, the upside is fairly limited as you don't usually get that many. $10K may seem like a lot, but it's not a house down payment, which was a very reasonable expectation from stock options when I was first hired.
Employee stock options on the other hand are an option to buy stock at a particular price (called the strike price). They vest in much the same way as restricted stock and typically you get a lot more of them compared to restricted stock. In order to make money the share price must be higher than the strike price (otherwise we say that they're underwater). You're not liable for tax until you exercise the options (i.e. buy the stock). Options will usually expire 10 years after they're granted. because you can get a lot of options and the strike price is often quite low the upside can be pretty good. Unfortunately IMHO most large companies seem to be moving to restricted stock instead of options.
posted by Long Way To Go at 6:21 PM on April 11, 2011
It's worth reiterating that restricted stock are not stock options, they're real actual stock that you're given for free. As such they are really just like a cash bonus in the form of stock. That's why you're liable for income tax as soon as they vest. You're pretty much guaranteed to make some money from your restricted stock. However, the upside is fairly limited as you don't usually get that many. $10K may seem like a lot, but it's not a house down payment, which was a very reasonable expectation from stock options when I was first hired.
Employee stock options on the other hand are an option to buy stock at a particular price (called the strike price). They vest in much the same way as restricted stock and typically you get a lot more of them compared to restricted stock. In order to make money the share price must be higher than the strike price (otherwise we say that they're underwater). You're not liable for tax until you exercise the options (i.e. buy the stock). Options will usually expire 10 years after they're granted. because you can get a lot of options and the strike price is often quite low the upside can be pretty good. Unfortunately IMHO most large companies seem to be moving to restricted stock instead of options.
posted by Long Way To Go at 6:21 PM on April 11, 2011
I'm just an employee somewhere with some hands on experience with these things it I'm not an accountant, financial advisor, or broker. So from one stranger on the Internet to another.
It is just a bonus that pays out over several years usually 4-5 years. If it is actual restricted stock worth $10k then you get something fairly tangible, but if it is in the form of stock options then the value is much less so. For options you will be granted the right to purchase a set number of shares at a set price. Assuming you work for a public company the money you earn from the options will be the difference between the price the stock trades at and the "strike" price you can purchas the shares at. For example you get 1000 shares at a $10 strike price. That isn't $10k worth of stock, it is the right to purchase 1k shares for $10k. Let us assume a year later your first batch of options vest (250 shares) and the company is trading at $12.50/share (a 25% gain which is not unreasonable). You execise a "cashless" sell and get 250*2.50/share in profit or $675. This is taxed as ordinary income at whatever rate you pay say 28%. Alternatively you could let it ride and wait for a bigger gain, depending on your financial needs anticipated rate of return etc. Typically option grants will have an expiration date of 8-10 years or longer, but read the fine print in the contract. If you don't execise the options during the time and terms offered you get nothing. It should also be noted that the stock may never go above $10 in which case your shares will never be worth anything.
Some companies now offer restricted stock grants instead of options. In this case you would be granted $10k worth of shares at the current market price (assuming $10) then you have 1000 shares. If the stock goes to 12.50 in a year and you sell your 250 first train h of vested shares then you get about $3000 in income.
In either case what you've received is a non-cash bonus designed to hold you at the company based on your overly optimistic money brain's valuation of the shares. Should you end up considering work for another company take the in unvested shares and divide your estimated value by the term remaining. Thus you could estimate worth based on a range vs the compensation offered by an alternate company.
For example if you make $50k/year in base. Since you've said it's $10k worth take that and divide by the vesting period and add it to your base e.g 4 year vesting is a new salary of 52-55k/year. So if an new employer offers at $65k/ year let the options go unless you are at the next Apple/Facebook/etc.
posted by humanfont at 6:30 PM on April 11, 2011
It is just a bonus that pays out over several years usually 4-5 years. If it is actual restricted stock worth $10k then you get something fairly tangible, but if it is in the form of stock options then the value is much less so. For options you will be granted the right to purchase a set number of shares at a set price. Assuming you work for a public company the money you earn from the options will be the difference between the price the stock trades at and the "strike" price you can purchas the shares at. For example you get 1000 shares at a $10 strike price. That isn't $10k worth of stock, it is the right to purchase 1k shares for $10k. Let us assume a year later your first batch of options vest (250 shares) and the company is trading at $12.50/share (a 25% gain which is not unreasonable). You execise a "cashless" sell and get 250*2.50/share in profit or $675. This is taxed as ordinary income at whatever rate you pay say 28%. Alternatively you could let it ride and wait for a bigger gain, depending on your financial needs anticipated rate of return etc. Typically option grants will have an expiration date of 8-10 years or longer, but read the fine print in the contract. If you don't execise the options during the time and terms offered you get nothing. It should also be noted that the stock may never go above $10 in which case your shares will never be worth anything.
Some companies now offer restricted stock grants instead of options. In this case you would be granted $10k worth of shares at the current market price (assuming $10) then you have 1000 shares. If the stock goes to 12.50 in a year and you sell your 250 first train h of vested shares then you get about $3000 in income.
In either case what you've received is a non-cash bonus designed to hold you at the company based on your overly optimistic money brain's valuation of the shares. Should you end up considering work for another company take the in unvested shares and divide your estimated value by the term remaining. Thus you could estimate worth based on a range vs the compensation offered by an alternate company.
For example if you make $50k/year in base. Since you've said it's $10k worth take that and divide by the vesting period and add it to your base e.g 4 year vesting is a new salary of 52-55k/year. So if an new employer offers at $65k/ year let the options go unless you are at the next Apple/Facebook/etc.
posted by humanfont at 6:30 PM on April 11, 2011
The benefit of these over stock options is that stock options will need to be reissued if the stock price declines enough to make them worthless with very little chance of going profitable. This is a headache for everyone involved.
posted by smackfu at 6:37 PM on April 11, 2011
posted by smackfu at 6:37 PM on April 11, 2011
These two statements are a bit contradictory: "My understanding was that it pretty much never happens in my company, and I'm the exception" and "I have no one else to ask these questions to". If you can't ask these questions, where did your understanding come from?
I would recommend you ask your manager about standard practice at your company. S/he'll probably hedge and say it depends on the year (won't want to verbally guarantee anything), but you could ask about typical years.
As someone who lived through the craziness of the late 1990's, some advice:
- Don't count your chickens before they're hatched (they're called "options" for a reason);
- Remember you actually need to pay for the stock first, you're not just getting it (so your 10K could not be too much money);
- Don't forget about taxes: it is tempting to hold for a year to pay capital gains instead of income tax, but that can bite you if the stock price drastically drops (you'd still owe the taxes due on the price when exercised).
posted by sfkiddo at 7:09 PM on April 11, 2011
I would recommend you ask your manager about standard practice at your company. S/he'll probably hedge and say it depends on the year (won't want to verbally guarantee anything), but you could ask about typical years.
As someone who lived through the craziness of the late 1990's, some advice:
- Don't count your chickens before they're hatched (they're called "options" for a reason);
- Remember you actually need to pay for the stock first, you're not just getting it (so your 10K could not be too much money);
- Don't forget about taxes: it is tempting to hold for a year to pay capital gains instead of income tax, but that can bite you if the stock price drastically drops (you'd still owe the taxes due on the price when exercised).
posted by sfkiddo at 7:09 PM on April 11, 2011
Meant to say "As someone who lived through the craziness of the late 1990's" AND the downturn of the early 2000s... But it would've been awesome if it just continued being crazy and lucrative...
posted by sfkiddo at 7:12 PM on April 11, 2011
posted by sfkiddo at 7:12 PM on April 11, 2011
sfkiddo: Your advice applies to options but not RSUs. RSUs are generally simpler: the employee simply receives shares of stock according to the vesting schedule. The stock's value at that time is treated as ordinary income for tax purposes, regardless of how long the employee holds the stock.
posted by xil at 7:27 PM on April 11, 2011
posted by xil at 7:27 PM on April 11, 2011
From the OP:
"To clarify, I received restricted stock units (RSU's). The ~$10k is calculated by current stock price * number of RSU's awarded. Sorry I stupidly referred to them as 'options' in the title. Thank you for the feedback and perspectives so far"posted by jessamyn at 8:30 PM on April 11, 2011
At my company, everyone (at least in engineering) tends to get RSUs as a part of their annual bonus. They're also often used as a signing bonus (or part of one) for new employees. You really can't attract software engineering talent in silicon valley without offering company equity.
posted by tylerkaraszewski at 9:42 PM on April 11, 2011
posted by tylerkaraszewski at 9:42 PM on April 11, 2011
Avoid focusing on those and focus on your main compensation. Think of them as a "nice to have" but not in lieu of higher base pay. I'm in advertising and I'd laugh if a company offered me anything with a 3+ year vesting period since people rarely stay at agencies more than 2 years for example. But that's just my industry.
posted by Elminster24 at 11:07 PM on April 11, 2011
posted by Elminster24 at 11:07 PM on April 11, 2011
Garlic, only the execs get them. I asked when being recruited/hired.
OP: if they give out RSUs, then did they create a employee stock plan account for you (or made you create one) ? They (company, not the stock plan account) should also have a doc explaining the tax consequences and what not.
In a previous job, I had ISO and non-qual options, RSU, and "bonus" options. Tax time was not-quite a nightmare, but took a lot of time to figure out because of how E-Trade reported the stock actions on 1099s, and how the company ALSO reported things on my W-2. So you should check your intranet for finance, and find their tax-preparing documents to help you wade through everything. (Software like taxcut/turbo-tax etc DO NOT give any good directions on this, in my experience..)
And I'd also agree with the "look at them as nice, free money, but nothing to count on" mindset.
posted by k5.user at 7:12 AM on April 12, 2011
OP: if they give out RSUs, then did they create a employee stock plan account for you (or made you create one) ? They (company, not the stock plan account) should also have a doc explaining the tax consequences and what not.
In a previous job, I had ISO and non-qual options, RSU, and "bonus" options. Tax time was not-quite a nightmare, but took a lot of time to figure out because of how E-Trade reported the stock actions on 1099s, and how the company ALSO reported things on my W-2. So you should check your intranet for finance, and find their tax-preparing documents to help you wade through everything. (Software like taxcut/turbo-tax etc DO NOT give any good directions on this, in my experience..)
And I'd also agree with the "look at them as nice, free money, but nothing to count on" mindset.
posted by k5.user at 7:12 AM on April 12, 2011
This thread is closed to new comments.
posted by animalrainbow at 5:32 PM on April 11, 2011