As with any investment, your equity and equity compensation entails various types of risk, including the risk that your company will underperform or even go under. In managing your company stock and stock options, it’s essential to factor in not just the risks themselves, but how personally tolerant you would be if they were realized. This involves analyzing your willingness, ability and need to take on the risks involved, and then managing them accordingly.
Similar in look and feel to RSUs, RSAs are actual stock that is held in escrow unit vesting and delivery occurs. RSAs are eligible for dividends and can be used in concert with an 83(b) election. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.
A form of stock-based compensation that allows recipients to participate in company stock performance. RSUs often give employees value in the company but are often issued with a vesting schedule that must be met for the employee to receive the shares. Often upon vesting, the full FMV of the units are taxed as ordinary income, units are withheld to cover tax, and the remaining value is deposited as shares into a brokerage account. Describing availability, vesting schedules, tax treatments, maximum grants, 83(b) eligibility, termination agreements, and detailed cash flow considerations is beyond the scope of this glossary.
When the company stock you own is worth more (or less) than what you paid for it, the capital gain (or loss) is considered unrealized, or “just on paper.” If you sell some of your stock, you permanently lock in the trading price at the prevailing fair market value, creating a realized gain or loss. Generally, only realized gains/losses represent actual money being gained or lost, with actual tax ramifications. Because stock options are merely the right to buy stock, not actual stock, their value is inherently unrealized, essentially worthless until you exercise them.
Whether you’re just getting started or expanding your knowledge, here are some resources to get you started.
Understand what you have, what you should consider, and what ultimately matters to you.
I write about equity compensation and employee stock options in a way that is easy to understand.
Understand what you have, what you should consider, and what ultimately matters to you.
Get the Ultimate Guide to Incentive Stock Options to better understand your equity compensation.
