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I don't disagree with this. They are indeed a form of equity. My issue relates to how they're treated with respect to taxation by the various revenue authoriti

I don't disagree with this. They are indeed a form of equity. My issue relates to how they're treated with respect to taxation by the various revenue authorities. In the UK, the tax paid on RSU's vesting is related to the personal income tax bracket the individual falls into. Which means for anyone in the UK's higher tax bracket, you end up losing ~50% of the amount vesting as tax. If these behaved like other forms of equity, ordinary shares, preference shares for instance, they'd be taxed as capital, the gains of which would be taxed 'when you sell them' and at a much lower rate of tax - ~50% lower for a UK higher rate tax payer. I'd rather a company just pay me a higher basic salary than award RSU's. At least then it's both pensionable and often used as a multiplier at bonus/salary raise calculation time.

mercutio2 5y ago
Agreed! If you can guarantee that you're going to get the same total compensation, compensation-as-salary is always better than compensation-as-RSUs. Of course there's upside to exposing yourself to your company's stock performance, but there's also downside risk, which people looking at equity compensation tend to downplay. Turns out its worked out well for big tech employees, as big tech has gone up 10x over not very many years. But that's not a reliable state of affairs into the indefinite future for big tech, and it was never reliable for smaller companies. Nitpick: "If these behaved like other forms of equity" I don't know what "behaved like" means in this context. You start out without equity. Then your company pays you equity. That's always going to be taxed as income, because it's transparently just income, just paid in a different liquid market.
- someguydave 5y ago
  Presumably the advantage of equity is also the ability to exercise some control over the business (the degree to which depends on the shareholder's agreements)
- cutthegrass2 5y ago
  > "If these behaved like other forms of equity" I don't know what "behaved like" means in this context. By behaved like, I actually mean't "taxed like". You nailed it in your post. The employee is taking on increased risk with RSU's. Risk that is not rewarded with a more favourable tax rate, as other forms of stock (baring the same risk) are. Yet, you're taxed as if the risk were the same as your salary. Which it isn't. (you'll probably still get paid even if the share price goes down, particularly in large companies). I'm always wary of companies that try to explain away the relatively low basic salary with "look how many RSU's you're getting instead". Especially so, when they've already been though their initial growth phase. Amazon (AWS) is particularly bad for this in the UK.

mercutio2 5y ago

Agreed! If you can guarantee that you're going to get the same total compensation, compensation-as-salary is always better than compensation-as-RSUs. Of course there's upside to exposing yourself to your company's stock performance, but there's also downside risk, which people looking at equity compensation tend to downplay. Turns out its worked out well for big tech employees, as big tech has gone up 10x over not very many years. But that's not a reliable state of affairs into the indefinite future for big tech, and it was never reliable for smaller companies. Nitpick: "If these behaved like other forms of equity" I don't know what "behaved like" means in this context. You start out without equity. Then your company pays you equity. That's always going to be taxed as income, because it's transparently just income, just paid in a different liquid market.

someguydave 5y ago
Presumably the advantage of equity is also the ability to exercise some control over the business (the degree to which depends on the shareholder's agreements)
cutthegrass2 5y ago
> "If these behaved like other forms of equity" I don't know what "behaved like" means in this context. By behaved like, I actually mean't "taxed like". You nailed it in your post. The employee is taking on increased risk with RSU's. Risk that is not rewarded with a more favourable tax rate, as other forms of stock (baring the same risk) are. Yet, you're taxed as if the risk were the same as your salary. Which it isn't. (you'll probably still get paid even if the share price goes down, particularly in large companies). I'm always wary of companies that try to explain away the relatively low basic salary with "look how many RSU's you're getting instead". Especially so, when they've already been though their initial growth phase. Amazon (AWS) is particularly bad for this in the UK.