Many haven’t heard of Restricted Stock Units and don’t fully understand the value of them. If you work for a corporation that trades publicly or privately held, this is something you need to understand prior to going into salary negotiations. Understanding how they work and why they are important is critical to maximize your earning potential.
Restricted Stock Units (RSU’s): This is a stock grant your company gives you, but the stock is “restricted” until it vests. There are a few variations of this. In this article we will walk through an example of how my employer uses RSU’s.
Each year, based off the level you are within the company, my employer gives you a grant of restricted stock units. On the day of the grant, let’s say they grant you $10,000 of stock. This means you will have $10,000 of restricted or “unvested” stock units.
Unvested stock means you have the money in your account, but you don’t have access to the stock yet. Your company is saying they owe you X number of shares, but you have to wait till the vesting date.
What is vesting? Your company will have a vesting schedule. For my company, we vest 25% each year for 4 years till you are 100% vested.
What does that mean? Examples with real numbers always make things easier.
This means each year you will receive 25% of your $10,000, or $2,500. You will have access to this money at that point. You can sell, or continue holding on to the stock. The last thing to point out here is that your stock could have gone up or down since your grand. So, for this example, let’s say your grant happened when the stock was selling for $100 per share. This means you were granted 100 shares ($10,000 in value).
If at your first year 25% vesting date your companies shares are worth $110, then you vest $2,750. Of that, $2,500 is the principle of your stock and $250 is realized gains.
Why RSU’s Are Great
There are good and bad things about RSU’s. The good thing is if your companies stock continues to increase in value. In that case you should experience large gains in your RSU’s each time you get a vest.
Another great thing is after you have been with the company for multiple years. The first year you vest, you only receive 25% based off the vesting schedule outlined above by my company; however, year 3, you vest 25% from year 1 and 25% from year 2. Year 4 you will vest 25% from year 1, 25% from year 2, and 25% from year 3. You can see how these compound on top of each other.
Year 5 is the most fun. In year 5, you vest 25% from year 1, 25% from year 2, 25% from year 3 and 25% from year 4. If you are able to increase your overall RSU grant each year, things only get even better.
The Downsides of RSU’s
The bad thing is you have to wait for the vesting before you receive the stock and can do anything with it.
For example, if your company is like mine, I have to work for four years before I will see my restricted stock units vest 100%. If you plan on being with your employer for a long period of time, then there is nothing you have to worry about. If you plan to bounce companies or have an entrepreneurial itch, try to negotiate your total comp elsewhere.
Understanding what Restricted Stock Units (RSU’s) and why they are important is critical to salary negotiations.
Ask and understand your companies vesting schedule.
Be sure your long term plan with the company aligns to your RSU’s. If you don’t plan to be with a company long, negotiate total compensation elsewhere. You won’t want to have a large part of your comp being RSU’s.
This year, hard work got me an increase in salary by $3,507! A lot of people talk about making more money. From my experience, the best way to increase your salary is by adding value and solving complex problems. That is what I have been able to do with both my W2 job and my real estate investments.
Another solid end of year eval at work!
How My End of Year Eval Works
At the end of each fiscal year at work I am evaluated on performance. This evaluation used to not be a huge deal as it only impacted base salary changes, but now my company has made it a larger impact on my overall compensation.
At work, we are rated on a scale of 1-5. A 3 means you met expectations for your role. A 4 means you exceeded expectations. The higher the number the better. Typically less than 2% of people get a 5 which is considered a Top Performer.
The last two years I received a 5 which led to some amazing opportunities. I busted my ass to get where I am at today. So many people out there aren’t willing to put in the work, and for the last 5 years, I have busted my ass to get in the position I am currently in. The first two years of my W2 career I worked 16 hour days 7 days a week. For two straight years.
I developed skills and knowledge that led to my company to create a new position to rollout the things I had been doing to all buildings we have in the US. This has helped lead to over $100 million in labor savings through increased efficiency within the operations teams.
This past year, I got promoted to a Director role. I was one of the youngest ever in the company to be a Director. Developing the skills and knowledge I have and adding value are the main drivers behind my rapid growth within the largest company in the world, Walmart.
I am blessed to be where I am, but also know I have worked extremely hard to get here. This year, I received a 4 on my eval. For being a Director level, and still getting a 4, overall I am very pleased. The only unfortunate thing is I am at the top of the pay band so my raise was less than I would normally expect. I am still happy with $3,507!
How My Salary Increase Works
There are multiple cool things about increasing my base salary. My total compensation at work is comprised of multiple things. Base salary is just one of those. My total compensation is made up of these three things:
Bonus % of Salary
RSU’s (Restricted Stock Units)
With the increase in base salary by $3,507, I will also see a few other benefits.
My 401k match is still 6% of my salary. So an increase in base by $3,507 will in turn increase my salary will result in an additional match of $210.
An increase in base salary by $3,507 will also increase by bonus by $981 based off my current pay structure.
So all in, the overall benefit of my base increasing by $3,507 will be an increase in total compensation by $4,698! Not too shabby.
Base salary increases are just one component of compensation! There is much more to it than just base compensation.
The fastest way to earn more money is by adding value in whatever it is that you do. You are paid in proportion to the level of problems you solve.