4 ms·

If anything, RSU compensation is worse than options because of the tax implications. With options you have the option of paying the tax before the appreciation

If anything, RSU compensation is worse than options because of the tax implications. With options you have the option of paying the tax before the appreciation of the equity. With RSUs, you pay at liquidity.

toomuchtodo 3y ago
If issued ISOs that are QSBS qualified, no federal tax on the first $10M or 10x your cost basis, whichever is more. 83(b) election is sometimes an option too. RSUs are, as you mentioned, mostly cash comp due to valuation and tax treatment. (not tax advice, we're just talking lottery ticket mechanics)
- beambot 3y ago
  IIRC, you only get QSBS if you (a) exercise to purchase actual shares while the company is QSBS eligible; and (b) hold the resulting stock for 5 full years.
  - toomuchtodo 3y ago
    Correct. You’ll also want a QSBS attestation letter from the finance team or whomever handles equity admin if the IRS comes knocking. Save it with your options grant documentation.
philip1209 3y ago
I've seen RSUs issued with single-trigger acceleration on acquisition or IPO.
- milkshakes 3y ago
  typically, the liquidity event is the trigger that takes longer, not the vesting schedule. with options, you can exercise before the liquidity event, and pay taxes on a much smaller income (or none at all in the case of QSBS as a sibling comment noted)
sokoloff 3y ago
You are permitted by the tax code to make an 83(b) election on RSUs. Very few non-founders do it, because it means you could end up paying tax (with the election) on shares that will never vest for you, but you do have the option to do so.
- milkshakes 3y ago
  fascinating! i have never heard of this. thanks for explaining.
kokanee 3y ago
As a W2 software developer, I've held options at three companies and RSUs at two. I've netted around $30K from RSUs, and netted a loss of $20K from options. Only once did my options "liquify," when a startup I had worked at was acquired. The proceeds were distributed entirely to preferred shareholders and employees were left with nothing, several of us having spent thousands to exercise. I made my bed and slept in it, so I have no axe to grind, but going forward I will never accept options over any other form of compensation, given a choice.
- verbify 3y ago
  Thanks for your contribution to this discussion, it's helpful to have actual numbers. There was a mixed metaphor that popped out to me in your comment (and I hope pointing it out doesn't break HN guidelines around tangential annoyances): > I made my bed and slept in it, so I have no axe to grind It reminded me of something George Orwell wrote in 'Politics and the English Language': > A newly invented metaphor assists thought by evoking a visual image, while on the other hand a metaphor which is technically ‘dead’ (e. g. iron resolution) has in effect reverted to being an ordinary word and can generally be used without loss of vividness. But in between these two classes there is a huge dump of worn-out metaphors which have lost all evocative power and are merely used because they save people the trouble of inventing phrases for themselves. Examples are: Ring the changes on, take up the cudgels for, toe the line, ride roughshod over, stand shoulder to shoulder with, play into the hands of, no axe to grind, grist to the mill, fishing in troubled waters, on the order of the day, Achilles’ heel, swan song, hotbed. Many of these are used without knowledge of their meaning (what is a ‘rift’, for instance?), and incompatible metaphors are frequently mixed, a sure sign that the writer is not interested in what he is saying... > By using stale metaphors, similes and idioms, you save much mental effort, at the cost of leaving your meaning vague, not only for your reader but for yourself. This is the significance of mixed metaphors. The sole aim of a metaphor is to call up a visual image. When these images clash – as in The Fascist octopus has sung its swan song, the jackboot is thrown into the melting pot – it can be taken as certain that the writer is not seeing a mental image of the objects he is naming https://www.orwellfoundation.com/the-orwell-foundation/orwell/essays-and-other-works/politics-and-the-english-language/ https://www.orwellfoundation.com/the-orwell-foundation/orwel...
santoshalper 3y ago
If you're reasonably confident they'll go up, options are better. The vast majority of startups are heading to zero.

toomuchtodo 3y ago

If issued ISOs that are QSBS qualified, no federal tax on the first $10M or 10x your cost basis, whichever is more. 83(b) election is sometimes an option too. RSUs are, as you mentioned, mostly cash comp due to valuation and tax treatment. (not tax advice, we're just talking lottery ticket mechanics)

beambot 3y ago
IIRC, you only get QSBS if you (a) exercise to purchase actual shares while the company is QSBS eligible; and (b) hold the resulting stock for 5 full years.
- toomuchtodo 3y ago
  Correct. You’ll also want a QSBS attestation letter from the finance team or whomever handles equity admin if the IRS comes knocking. Save it with your options grant documentation.

philip1209 3y ago

I've seen RSUs issued with single-trigger acceleration on acquisition or IPO.

milkshakes 3y ago
typically, the liquidity event is the trigger that takes longer, not the vesting schedule. with options, you can exercise before the liquidity event, and pay taxes on a much smaller income (or none at all in the case of QSBS as a sibling comment noted)

sokoloff 3y ago

You are permitted by the tax code to make an 83(b) election on RSUs. Very few non-founders do it, because it means you could end up paying tax (with the election) on shares that will never vest for you, but you do have the option to do so.

milkshakes 3y ago
fascinating! i have never heard of this. thanks for explaining.

kokanee 3y ago

As a W2 software developer, I've held options at three companies and RSUs at two. I've netted around $30K from RSUs, and netted a loss of $20K from options. Only once did my options "liquify," when a startup I had worked at was acquired. The proceeds were distributed entirely to preferred shareholders and employees were left with nothing, several of us having spent thousands to exercise. I made my bed and slept in it, so I have no axe to grind, but going forward I will never accept options over any other form of compensation, given a choice.

verbify 3y ago
Thanks for your contribution to this discussion, it's helpful to have actual numbers. There was a mixed metaphor that popped out to me in your comment (and I hope pointing it out doesn't break HN guidelines around tangential annoyances): > I made my bed and slept in it, so I have no axe to grind It reminded me of something George Orwell wrote in 'Politics and the English Language': > A newly invented metaphor assists thought by evoking a visual image, while on the other hand a metaphor which is technically ‘dead’ (e. g. iron resolution) has in effect reverted to being an ordinary word and can generally be used without loss of vividness. But in between these two classes there is a huge dump of worn-out metaphors which have lost all evocative power and are merely used because they save people the trouble of inventing phrases for themselves. Examples are: Ring the changes on, take up the cudgels for, toe the line, ride roughshod over, stand shoulder to shoulder with, play into the hands of, no axe to grind, grist to the mill, fishing in troubled waters, on the order of the day, Achilles’ heel, swan song, hotbed. Many of these are used without knowledge of their meaning (what is a ‘rift’, for instance?), and incompatible metaphors are frequently mixed, a sure sign that the writer is not interested in what he is saying... > By using stale metaphors, similes and idioms, you save much mental effort, at the cost of leaving your meaning vague, not only for your reader but for yourself. This is the significance of mixed metaphors. The sole aim of a metaphor is to call up a visual image. When these images clash – as in The Fascist octopus has sung its swan song, the jackboot is thrown into the melting pot – it can be taken as certain that the writer is not seeing a mental image of the objects he is naming https://www.orwellfoundation.com/the-orwell-foundation/orwell/essays-and-other-works/politics-and-the-english-language/ https://www.orwellfoundation.com/the-orwell-foundation/orwel...

santoshalper 3y ago

If you're reasonably confident they'll go up, options are better. The vast majority of startups are heading to zero.