RSU vesting to cash

ericpoteet

i'm surprised that the RSU doesn't permit vesting to cash: many agreements the RSU when vesting are considered employment income, there are no actual shares.

Tom Young

I've never had an RSU so I can't say definitively that there aren't some that, somehow, permit "vesting to cash", but since there's actual shares of stock involved with an RSU my guess is that what we are really talking about here is a "same day sale" situation.

Since same day sales typically create a small stock loss on the sale due to selling commissions and fees, (or a gain or loss due to actual selling prices that are different than the "fair market value" used by the employer to calculate the compensation), I'd guess the safest approach - or "most correct" approach - is to actually go through the vesting/selling/cash to you approach.

ericpoteet

The typical RSU plan is cash settled and the cash payment is considered taxable income. RSUs crystalize on a specific date, typically at the closing price. The purpose of RSUs is to link income to the stock's performance, so in a sense RSUs are deferred indexed income. They are not assets, there is not capital gain or loss etc.

RSUs that do vest to shares are typically held by the employer for tax deferral purposes. When they are taken out, typically at retirement, they are again cash settled and the proceeds are considered taxable employment income.

The simplest way to treat the vesting would be to allow cash settlement.

The required work around means vesting the shares to the RSU account, then removing the entry to keep only the cash, then transfer the cash out. You also need to calculate the share equivalent amount that will equate to your net income. It's workable but a bit clunky.

ericpoteet

The other issue is the fact that RSUs can accrue dividends.
the current workflow doesnt allow for RSUs awards to increase accordingly and update the vesting schedule automatically.

for example is you are awarded a stock today and it vests in 3 years you might be looking at deleting the original grant 12 times per grant to add the share equivalent dividends, so 36 times if you have a rolling 3 year RSU schedule. its not manageable.

A simple fix would be to allow adding to the original grant and updating the entries accordingly .