ECONOMY & WORK
MONEY 101
NEWS
PERSONAL FINANCE
NET WORTH
About Us Contact Us Privacy Policy Terms of Use DMCA Opt-out of personalized ads
© Copyright 2023 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.
MARKETREALIST.COM / ECONOMY & WORK

The Real Reason why Companies Offer Restricted Stock Units to Employees and how it Benefits Them

Elevate job benefits with these long-term strategies for job perks comparable to cash bonuses according to the experts
PUBLISHED MAY 5, 2024
Cover Image Source: Pexels|Photo by Karolina Grabowska
Cover Image Source: Pexels|Photo by Karolina Grabowska

Job satisfaction and hefty compensation are considered the most basic factors that make an offer attractive for professionals. But instead of just paying higher salaries, companies have resorted to breaking the compensation into tax, variables, and stock components. One of the most popular instruments that most public companies in the United States offer their employees are “Restricted stock units (RSU)”. Back in 2000, only one-fifth of the public companies gave restricted stocks, but in 2023 the number has jumped significantly to 94%. Companies like Amazon, Apple, Uber, Verizon, Bank of America, Microsoft, and Starbucks are granting restricted stocks to their workforce.



 

Why companies offer RSU?

One key reason that leads to companies making it a component of the salary structure is the fact that restricted stocks act as golden handcuffs and motivate the employee to stay with the company for a longer tenure. Employees don’t get restricted stocks regularly with their salary, rather a significant portion of RSU gets realized after the employee completes a specific time with the company. The employee generally gets other restricted stocks on an annual basis. Being a stakeholder in the company makes the employee stay with the firm for a longer time and makes them more dedicated towards driving up profits.



 

One catch with this strategy is that if the employee leaves the company before completing a year, they might lose all or a big part of their restricted stocks. Once the employee gets ownership of the stocks, the employee can have all trading rights as they have for other stocks in the portfolio. The employee can decide to hold the share for a longer period to maximize gains or sell it instantly depending on stock price, company growth, and market dynamics.

Tax strategy for RSU

Employees need to have an elaborate tax strategy if they have RSU as the salary component. When the employees get ownership of the shares, they are also liable to pay taxes on them. Generally, companies deduct 22%or 37% as taxes and if the employee’s tax rate is higher, they would need to pay additional taxes. Depending on in which state the employee lives, and their total salary, the tax rate may vary. Also, the time for which the stocks are owned by the employee also plays a key role in deciding how much tax needs to be paid on selling the stocks. If the employee holds the share for longer than one year and then sells it, then the tax change on profit is termed as long-term capital gains. Generally, the long-term capital gain is lesser and can be 0%, 15%, or 20%.



 

But if employees sells the stock within one year of getting the ownership, then they need to pay short-term capital tax gain on the profits, which is calculated at the regular income tax rate. Speaking about the matter, Bruce Brumberg, editor-in-chief at myStockOptions said “You have to be aware of that and pick a strategy,” he said. If your company only withholds 22% and your tax bracket is higher, you may need to make quarterly estimated tax payments.”

MORE ON MARKET REALIST
The player wasn't too upset about the final result of his bonus round.
7 hours ago
The guest wanted $100,000 but was not able to get an offer, through no fault of his own.
8 hours ago
The company basically produces dolls that require some knowledge of coding to operate.
8 hours ago
The viewers were sympathetic to the player, Vandana Patel, after her heartbreaking loss.
10 hours ago
The host proceeded to ask a hilarious question, which made the whole round immensely entertaining.
11 hours ago
The round was filled with hilarious answers that cracked the host up often.
1 day ago
The contestant was super excited to have made it to the Bonus Round and he won big.
1 day ago
Corey Harrison was interested for a bit but that price immediately made him say no.
1 day ago
Drew Carey tried making a bet with the contestant but she was not having it.
2 days ago
Steve Harvey was left stunned by the answer and had to question the entire family.
2 days ago
Steve Harey forced the contestants hiding to come out and address the situation.
3 days ago
Rick Harrison were creeped out by the handcuffs but still wanted to buy them.
3 days ago
Cuban was interested in the tech side of the company but was annoyed when his doubts got no answers.
3 days ago
She had already won more than $21,000 and a trip to Portugal before heading to the round.
4 days ago
The contestant even apologized to Steve Harvey after her answer was called out.
4 days ago
The host urged fans not to laugh at the answer, as it might come back to bite them in the future.
4 days ago
The seller lacked any solid proof and as a result, nobody on the show wanted to offer him a deal.
5 days ago
The contestant wished that bars gave free alcohol to those already drunk out of their minds.
5 days ago
It would have been easy for Amy Schneider to respond harshly to the accusations, but she remained cool and collected.
5 days ago
The host was left shocked after hearing the answer as he mouthed "wow" a couple of times.
5 days ago