How do employee stocks, options and RSUs actually work?

Question

I recently got some from one of my job, and have no idea about it. Specially the Options

MikeTheBartender · Accepted Answer

First the usual this is gag ask a financial advisor blah blah blah

(I don't trust 99.5% of them)

Like what to do with your old stocks? You're under 59.5 so unless you were a cop or firefighter you probably can't touch it.

The Simple Plan To Wealth

The Psychology of Money

Two of the best investment books I ever read, both available on audio, and in different languages. I've read the second one 3x in English and Italian.

I've read over 100 books, and been broke as fuck probably more than 100x when I was younger. I'd recommend reading those books first.

DryGermanGuy · Accepted Answer

It means that the company gives as payment stocks of the company and the option to buy an additional certain amount of stock at a set price or even discounted price.

OneViewpoint · Answer

Oh man, incentive and non-cash compensation, lots to unpack. I don't know Spanish tax law so my responses will reflect US tax law. But I would expect the two to be at least similar.

To begin these are 3 non-cash compensation schemes that can be used in addition to salary and benefits or annual bonuses to attract and retain talent. The financial upside for the company is they are not an immediate hit to the P&L (income statement) or cash. The upside for the employee is the possibility of owning an asset that generates gains (or losses) over time. Welcome to equity ownership and the associated risks.

ESOPS - Employee stock ownership plans. Often available to the entire workforce through payroll deductions. You can buy company stock, usually at some small discount (5-15%) to current market value. There is zero tax impact until you sell the stock and record a gain or loss. It's meant to make employees feel like they have an equity / ownership stake in the company. In the US gains can be taxed as long term (capital gains) or short term (ordinary) income depending on how long the stock has been held.

Incentive Stock Options - The employee is awarded an option to buy a fixed number of company shares at a fixed strike price say 5,000 shares at a $100 strike price. The options usually have a time limit for execution. And there is usually a "vesting" period, a waiting period for the options to become available. That keeps the employee bound to the company waiting for the options to vest. Once the options have vested, the employee can choose to buy some or all of the stock if the market price is above $100 or do nothing and let the options expire is the market price is below the strike price of $100. Let's say the market price is now $150 and you're fully vested. You buy 5,000 shares for $500,000 and in the same transaction you sell them for $750,000 and make a $250,000 profit on which you will pay income taxes. Or, the market price is $50 and you do nothing because your options are "underwater", below your strike price so, you simply let them expire. The options were worthless to you. Once again, welcome to the risks of equity ownership.

Restricted Stock - The company grants you Restricted stock options. Like incentive stock options, there is a grant date and a vesting schedule. But unlike incentive options, the company is outright giving you shares of stock. You're not buying them. But you do recognize the income when the restricted stock ownership is transferred to you. That means you have a tax liability for ordinary "income". Subsequent gains and losses may be treated as capital gains and losses depending on how long you hold the stock.

Non cash compensation is widely used to create incentives for performance or reduce turnover in key employees. It generally comes up in negotiations during the hiring process. And it's part of the planning during an annual budgeting process.

molonski2 · Answer

It's pretty simple really on employee options they will have a expiration date and a strike price , if the share price goes beyond your price , just have the money to convert the options into ordinary shares..

I worked for a company in Australia, listed company , and it was great , when the scrip is rising , I had shares , converted all the options , the company was taken over and my holding was worth 25k..

Just one example..

Employee options are always LONG , meaning an assumption ( if we work well together ) than the company share price will rise.

Valuable asset if that happens , it's how the CEO gauges his / her performance ( generally) .

exitseven · Answer

Stock options are a promise by the company for you to be able to buy shares of their stock at a specific price even though the real price is greater.

If your stock option is at ten dollars a share and the current market value is 20 dollars a share , cashing in your stock options will double your money.

slatyb · Answer

Options are a just that -- an option to buy a stock at the option price. Almost always worthless unless you are fortunate enough to work for a unicorn. RSUs are shares of stock awarded after they vest. They are worth whatever the stock is worth when they vest. You have to be careful with options because you can end up paying more tax than they are worth when you sell them. RSUs are just delayed compensation.

loveslongnails · Answer

There's nothing special about them. In lieu of raises or bonuses, companies may give you stock instead. There are different kinds of stock though, and you may not be able to convert them to cash right away by selling them. You really do need to know the particulars and someone who understands your specific situation.

ohsheeT · Answer

This is a very good question I don't know the answer to it but isn't like a 401k almost like stock options except for you don't get to keep the stock I don't think yeah this is a good question

Bricealan · Answer

@kelly6 Kelly, best suggestion: talk to a financial advisor, or someone on the job familiar with a particular, stock and the options you have.

lightbulb27 · Answer

Ask ai. Its a good incentive as long as price gors above your option price.

BonzoInBitburg · Answer

You go see an accountant. Accountants pay for themselves for most people.

SparklingWine10 · Answer

I don't know my investment are rental property.

msc545 · Answer

No idea. I guess you need to ask an accountant or somebody.

bear34 · Answer

I have no idea..

In_Trance · Answer

Login to your plan. It will give you the details

dougeats · Answer

yessssss

How do employee stocks, options and RSUs actually work?

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