You pay taxes at date of vest not grant. Small terminology difference, but important - if you sell your RSUs immediately, you never lose $ after taxes.
https://www.schwab.com/public/eac/resources/articles/rsu_fac...
Example: you're granted 1 share today to vest in 1 year. In 1 year the share is worth 100, it vests and you pay PAYE in this (it can either come from your salary, or by selling the stock). If the stock rise to 150 and you sell it after, you pay CGT on 50.
Huh? Can you actually keep the stock and give revenue the money out of your post-tax? I wasn't aware that was possible.
The one loophole is to sell with 4 weeks, that is CGT exempt.
Most people should always just sell the stock immediately to cover tax burden. I mean, do whatever you want, but why set yourself up for tax liability risk at all. There are tons of other good investments out there that will mitigate concentration risk.
If there's actually a strong fundamental basis for upside (not 10x sales fantasy valuation), it could be prudent to hold in some cases
Concentration is the real risk. I know many people at Apple and Microsoft whose only investment is their company stock. It has worked out well for them but they're just one big scandal away from disaster.
Holding vested RSUs is only wise if your conviction is that the company you work for is the best investment available at the time.
You can easily sell them and invest in other stocks instead, which reduces your risks substantially
My last two employers deducted shares at vest as tax. This is in US, btw. I am surprised it isn't the common practice. The only problem was that the withholding rate was too low for my effective tax rate which means I always have to pay estimated taxes.
Default withholding has been 22% now for a few years. I bring this up because the gap between default withholding and the higher marginal rates has widened compared to the years it was at 25%.
> Yet, base comp tends to be withheld at marginal rates
To clarify, default withholding on base pay uses your bottom tax rates. It assumes you have no other income, so it will calculate based on standard deduction, 10%, 12%, then working upwards. So I wouldn't use the word "marginal" to refer to base pay because most people understand that as their top tax rates.
This means that for bonus, stock, and other compensation, it's reasonable to increase withholding to reflect the top tax rates.
> most folks’ effective tax rates
A bit of an aside, but I'm not a big fan of the idea of "effective tax rates". It's not a term the IRS uses, but something that tax software companies like to push for whatever reason. You also can't do much with it in practice: regarding withholding, it's not useful and potentially confusing.
The refreshers at Meta are mostly mechanical based on your role and level, and they’re allocated in dollars even though the grant is converted to shares at a specific date.
Otherwise the company is creating a lot of dilution for shareholders. e.g. to reach the same dollar amount requires more shares. And Meta is already crashing explicitly because their operating costs are out of control and outpacing their earnings growth
But that would just be pragmatic, they may not actually be doing that.
Good management in this situation would be refreshing grants only for the top half of performers and letting the others choose to leave, IMO
Guaranteed millionaire status with close to 0 risk. Look how spoiled many of us have become in tech, though, that we have people like you saying this. It's not gonna last forever
Most who got RSUs over the last two years lost big, and I bet they regret having a variable comp component now. Choosing RSUs over cash was a horrible choice for most in recent years
Hopefully GenZ/Millenials are learning the important lesson about fair value and fundamentals
Going to be great to see many of the 80%ers in tech have to face reality when the recession comes next year... hope you're a 20%er.
To be clear, Tech employees have been grossly overpaid the past decade (including myself). That reality is ending soon... get used to it
Many tech employees are underpaid, if anything.
Job swapping assumes these tech companies are no longer under a hiring freeze. It also assumes that these companies won't recognize why the mad rush of job swaps is happening and just lower the salaries for new hires.
On top of this, my experience is that a shocking number of people getting a large part of their comp in RSUs don't diversify when they vest.
I don't work at a FAANG, but 1/3 of my TC is RSUs. Most of my coworkers look absolutely aghast whenever I mention that I liquidate all my vested shares as soon as the trading window is open.
Many of my friends that do work for FAANGs, getting >50% of their TC as RSUs likewise don't diversify as soon as possible, but hang on to it.
What's crazy is if I ask my coworkers "If you had that same amount of vested RSUs in cash, would you invest in our company?" They all laugh and say "no!", but then immediately claim that they won't cash-out and reinvest.
Point being I suspect that individual net worths of a wide range of tech workers are getting absolutely destroyed right now.
If the stock then appreciates, you have to hold it for a year to get long term capital gains tax on the appreciated amount (not the original vest amount).
So there's no tax advantage to waiting to sell. Only if you wait and it happened to go up in that time, and then you don't want to incur short term cap gains on that appreciation.
There is a big tax liability problem if you choose not to sell and the stock declines though. You may end up owing more in taxes than the stock is worth in some cases
Granted, $15,000 after tax income would not be what I was hoping for.
(I'm ignoring state income tax because my withholding on that happens to be correct.)
Capital gains only covers the value increase over the year you hold the stock after its vested.
If you work at META, and then immediately on vesting diversify and don't touch the stock for a year you'll reap the same capital gains benefits but with a diversified portfolio.
You also have a wide range of defensive strategies you can apply that you can't if you're locked into trading windows. Say a META employee was very bullish on FAANG in general and at vesting put all their money in GOOG. If they were nervous about this week's earnings they could have either closed their position to see what happens, or bought defensive puts to lock in a maximum loss. Had they instead chosen to hold META they would have neither of these options.
There are cases for recently IPO'd companies where you vest then have a potentially 6+ month lockout period for trading. In those cases it can make sense , provided you have seen substantial gains in that lockout period to keep holding for tax reasons.
I spent a lot of the last decade at facebook. I immediately cashed out every single vested RSU and plowed the money into broad market ETFs.
It always blew my mind how many of my coworkers were willing to leave a huge chunk of their net worth invested in their employer's stock.
As you might imagine, I'm feeling pretty good about my strategy right now.
Clearly I was holding the place together ;)
Can confirm. A couple of decades ago I was working at EMC. Back then we got options instead of RSUs, but I basically always cashed out as soon as could and moved the money into other things. I figured I already worked there and had the stock purchase plan and the unvested options, so I didn't need more eggs in that basket. All of my coworkers thought I was crazy ... until I watched many of them ride the stock from $114 down to $3 hoping all along that it would come back up.
I was lucky to have learned the lesson the easy way, but I'm pretty sure they all learned it too. Also pretty sure that many of my former FB colleagues are right now doing exactly the same. Twenty years from now, if HN hasn't collapsed into a black hole of toxicity by then, we'll probably be having the exact same discussion about whatever replaces FB. The wheel keeps turning.
Also, the fact that a single stock once fell from $114 to $3 should have no bearing on decision making.
Recognizing the possibility that such a thing can occur shouldn't affect decision making? Sounds blinkered and crazy to me. It's exactly how my coworkers lost their shirts. Finance-bro jargon aside, you don't seem to understand basics like the kinds of options given by employers at that time (two types neither the same as the ones you buy on the open market) or even the value of diversification. But sure, go ahead and keep proving my theory about why we won't be having that discussion here in twenty more years.
It's a great deal if you plan to stay with the company for a long time and think the stock will go up quite a bit, because you multiply your gains.
Now there's three hits. Employees generally kept their stock. So their savings went down. The pay is down as you said. Lastly inflation.
In addition job mobility is down. There's still plenty of tech jobs but it's definitely down and not as easy to just switch.
It's one hell of a return to earth although perhaps overdue.
I did this while at Facebook eating the shit while the stock price grew, but now... I feel like a genius.
What’s the downside though? Do you get the same dollar amount whether you choose RSU or cash? Does the comp compare favourably to the top of market companies who pay mostly RSUs? Can you potentially lock in a low strike price for your grant over four years or is it more like an ESPP? (Of course the last year showed this is not always a winning strategy lol).
My assumption is that paying employees in RSUs works out more favourable for the companies than paying all cash so I’d expect it to be lower if you take all cash (I have zero knowledge of accounting mind).
Meanwhile, the new guy doing the same job as you got their RSUs granted at today's stock price, but the target value for someone at that job level- no pay cut for them, effectively.
It's a recipe for a lot of people swapping jobs just to keep their incomes at the same level.
Or, companies can do as my employer did (bias note) and switch to a new comp system that avoids these problems: https://news.shopify.com/rewriting-the-story-of-compensation