4 ms·

Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies. Options in a startup are extremely likely

by ptmcc 6y ago

Let's be careful here and not conflate options and RSUs, especially comparing between startups and public companies. Options in a startup are extremely likely to be worth nothing, ever. Not only does the company need some sort of liquidity or exit event, but the valuation then also has to be higher than the strike price on your options. And options usually have punishing exercise-or-lose-them requirements if you leave the company before a liquidity event. RSUs, once they vest, are yours without having to exercise them. If it's a public company you can turn around and sell them on the open market immediately if you desire and get cash for them. If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours. Yes 1-year cliffs for vesting are common and do defer compensation, but 1 year is not a long time at all to be at a company especially a large public company. After the first year the regular vesting cadence sets in and it's just a slightly more complicated form of cash, with market risk. Over the past few years that market risk has hugely benefitted most tech companies and RSU recipients. In 2020 my RSU comp was more than 50% of my total comp, basically doubling my (already high) base salary. ESPP further compounded that.

dilyevsky 6y ago
It’s still possible to lose money on rsus if the company value plummets bc they are taxed on liquidity event (assuming double trigger vest)
- rblatz 6y ago
  You can also elect to be taxed at the time of the grant via an 83b election.
reissbaker 6y ago
RSUs are trickier than that if you work at a non-public company (e.g. a startup). For example, they actually do typically expire if the company doesn't have a liquidity event within a certain timeframe -- and unlike options, if the expiration date comes up you have no recourse; with an option, you can at least exercise it, at which point it becomes common stock and you own it outright. As a personal example, I previously worked at Airbnb and had a mixture of options and RSUs. Some of my RSUs were only months away from their expiration date when the company went public; if anything had delayed the IPO much longer, they would have disappeared. With the options, I could have bought them and prevented them from disappearing even had the company not gone public. As a result, leading up to the IPO I was moderately worried about my RSUs, but not particularly worried about my options. FWIW, you're probably thinking about ISOs ("incentive stock options") when you refer to the "punishing exercise-or-lose-them requirements;" companies can also offer NQSOs ("non-qualified stock options"), which are less tax-advantaged but can offer long exercise timeframes even after you leave the company. A lot of the "unicorn" startups, including Airbnb, allowed ISO holders to convert to NQSOs for that reason. Options vs RSUs is a tricky subject and the ideal choice varies based on circumstance.
heleninboodler 6y ago
> If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours. The quotes around "basis" here make me think you probably know this, but just in case someone needs this nit picked: this "basis" being referred to here is emphatically not the "cost basis" for tax purposes. If a $50 share vests and you sell it for $55, you have a cost basis of $50, giving you $50 income and $5 capital gain.

by ptmcc 6y ago

dilyevsky 6y ago

It’s still possible to lose money on rsus if the company value plummets bc they are taxed on liquidity event (assuming double trigger vest)

rblatz 6y ago
You can also elect to be taxed at the time of the grant via an 83b election.

reissbaker 6y ago

RSUs are trickier than that if you work at a non-public company (e.g. a startup). For example, they actually do typically expire if the company doesn't have a liquidity event within a certain timeframe -- and unlike options, if the expiration date comes up you have no recourse; with an option, you can at least exercise it, at which point it becomes common stock and you own it outright. As a personal example, I previously worked at Airbnb and had a mixture of options and RSUs. Some of my RSUs were only months away from their expiration date when the company went public; if anything had delayed the IPO much longer, they would have disappeared. With the options, I could have bought them and prevented them from disappearing even had the company not gone public. As a result, leading up to the IPO I was moderately worried about my RSUs, but not particularly worried about my options. FWIW, you're probably thinking about ISOs ("incentive stock options") when you refer to the "punishing exercise-or-lose-them requirements;" companies can also offer NQSOs ("non-qualified stock options"), which are less tax-advantaged but can offer long exercise timeframes even after you leave the company. A lot of the "unicorn" startups, including Airbnb, allowed ISO holders to convert to NQSOs for that reason. Options vs RSUs is a tricky subject and the ideal choice varies based on circumstance.

heleninboodler 6y ago

> If the company's stock declines, your RSUs are still worth something since the "basis" is $0. If you leave the company, your vested RSUs are still yours. The quotes around "basis" here make me think you probably know this, but just in case someone needs this nit picked: this "basis" being referred to here is emphatically not the "cost basis" for tax purposes. If a $50 share vests and you sell it for $55, you have a cost basis of $50, giving you $50 income and $5 capital gain.