Handling of RSUs & Net Worth

[ATXFIRE2034]

My employer offers RSUs as a long-term incentive. When I'm awarded these, even though they vest over a period of time, do I include their worth in my Net Worth?

 

[RunningBum]

As with another similar recent thread it depends what purpose this has. I used to get stock options when I was working. I only included those that were vested for my net worth on investment assets, which I used to determine if I was FI. I also kept track of the value of the unvested shares, partly for my info and entertainment, and partly to see what I'd be giving up if I stopped working.

 

[ATXFIRE2034]

Makes sense. I guess a follow up would be did you tend to hold your vested stock or sell and invest otherwise? I'm sure it depended on the market for those shares but I'm asking just in general.

As with another similar recent thread it depends what purpose this has. I used to get stock options when I was working. I only included those that were vested for my net worth on investment assets, which I used to determine if I was FI. I also kept track of the value of the unvested shares, partly for my info and entertainment, and partly to see what I'd be giving up if I stopped working.

 

[levindb]

The value of your RSU's change on a daily basis (except weekends and holidays) ...and Net Worth is just a bragging right, not something you can live off of unless you are willing to sell everything you own in life.

Because they can have a $0 value, I would not count on RSU's until you exercise your options...and then use those funds to enjoy life. IMHO

 

[RunningBum]

Makes sense. I guess a follow up would be did you tend to hold your vested stock or sell and invest otherwise? I'm sure it depended on the market for those shares but I'm asking just in general.

The options vested a fraction of a time over the 4 years, and once fully vested we had a time frame to exercise before they expired. 1 more year at first, then 5 more years on later grants. I tended to wait as long as I could most of the time, but took a little off the table early, and more when I was building my current house. Once exercised I did a same day stock sale, and if I wasn't using it for a specific purpose, I reinvested, but often in other tech stocks so I still wasn't really diversifying. I was too greedy. Eventually the dotcom bubble burst and a lot of options went underwater or were severely cut.

Of course the optimal would've been to exercise and sell at the top but choices become obvious in the rear view mirror, but probably when I hit FI I should've sold everything vested and diversify better.

Bottomline, it's pretty risky to keep company stock. Not only are you overweight in it, but if the company tanks, your stock loses value and you might be out of a job. Double whammy.

 

[HarveyS]

OP - no, I would not count them upon grant. They only have actual value when they vest. Depending on the plan, they may have survivor rights - I don't know. Also, they may have accelerated vesting if you retire. For me, the cleanest way to track these in NW is only after they vest. My opinion on stock appreciation rights or options is the same. Only after they vest.
And, if you want accurate numbers, track the after tax value. When the RS vests, about 25-33% of the value will be a tax liability.

 

[tulak]

If they’re vested, then I would count them. In my case, it’s easier since I immediately sell my RSUs when they vest and then reinvest those funds based on my asset allocation.

I’m not a big proponent of holding a lot of company stock, but this can depend on the company.

 

[tulak]

Handling of RSUs & Net Worth

And, if you want accurate numbers, track the after tax value. When the RS vests, about 25-33% of the value will be a tax liability.

After tax value of what?

When your RSUs vest, you have to pay taxes immediately. I believe most companies will automatically sell shares from the vested stock in order to pay taxes. What’s left over is regular stock, which if you sell will either be short or long-term capital gains. Or a loss if you’re not lucky!

Edit to add: it sounds like people are mixing up options and RSUs. The two are very different and the OP was asking about RSUs.

 

[corn18]

RSUs are not in my net worth. They aren't mine until they are vested.

RSUs are in my retirement savings plan. I sell as soon as they vest and then 100% of the proceeds go into my taxable retirement savings account. I use the current share price to forecast proceeds and taxes.

I had not considered the death benefit of my RSUs. I have a lot of them and they all vest on my death, so I guess I should account for them in my survivor plan.

 

[mpeirce]

If they’re vested, then I would count them. In my case, it’s easier since I immediately sell my RSUs when they vest and then reinvest those funds based on my asset allocation.

I’m not a big proponent of holding a lot of company stock, but this can depend on the company.

The question of holding company stock has a lot to do with your risk tolerance. Here's how I viewed it (and certainly reasonable people will differ...)

There are three sources of company stock and I viewed them differently:

1. Outside holdings. I never bought company stock from my broker. My investments were almost all broadly diversified mutual funds (I like the total market finds). Full fund 401k, but also put money in a taxable account.

2. ESPP. I always bought the as much of this as I could. These plans typically offer a discounted purchase price and if you sell when it vests, you automatically make money. My approach was to sell 50% when it vested. That way I was always making some money and taking a bit of cash off the table for personal use (usually investing, but not always). I'd let the other 50% ride.

3. Options/RSUs (I originally got options, then then company switched to RSUs). I had worked other jobs that offered options and had made a little money from them. Mostly they expired worth little or I left before they vested much. I viewed options as potential compensation, but I did not really view them as income. More, a chance at a nice payoff if the company does well. If they didn't yield any profit, oh well.

For a number of years this was fine. I skimmed some money from the ESPP and I ignored the options completely.

Eventually, the company was doing really well. I mean really well. I had accumulated a decent number of ESPP shares and the options were becoming very valuable. It dawned on my that these holding were potentially going to deliver me to Bob Brinker's "Land of Critical Mass" (my frame of reference at the time - equivalent to FI).

I started talking to DW about being able to live off our investments (we had good savings outside of the company stock, but the company stock was what made the difference, me being in my 40's). DW was rather skeptical, so at one point we set a price where if it hit that, we'd cash out enough to pay off the mortgage. We hit that and that's when DW decided that FI was actually possible.

We set another price point where we'd have enough net worth and when it hit that, I exercised the options and a good chunk of the ESPP shares (had a huge tax bill too!). We held on to some shares and vowed to slowly sell that to get it down to a few percent.

By letting the options ride, sure I was gambling. But if they expired worthless, no big deal, we'd be just fine. But they did really well and I was able to stop working at 49.

YMMV

 

[SeattleRocks]

For net worth purposes, I would only count RSUs when they vest. Nothing before then. The majority of my net worth is based on RSUs that I vested in, sold, and then dollar cost averaged to diversify the proceeds into Vanguard mutual funds.

I never counted unvested RSUs in my net worth, because they weren't mine yet.

My $.02

 

[tulak]

Yes, options can give a big payout (congrats!). The problem is that most (all?) companies have moved from options to RSUs. You don’t get close to the same upside potential with RSUs.

I had options early in my career and they did great until the stock plateaued. The latter grants expired mostly worthless and the company moved to RSUs. I also had ESPP and got into the habit of immediately selling the shares after I got them, but this was years after watching a flat stock price. In my case, I would have been better investing in index funds.

Current company, same deal. Flat stock price. But since I immediately sell and reinvest in other funds, my performance has been fine.

When it comes to RSU shares, there’s no benefit to not selling immediately, unless you think the stock will appreciate more than other investments.

For ESPP, it depends on how long you hold the shares, since that determines if it’s an ordinary or capital gain. I’m more than happy to pay taxes immediately, since I look at it as free money: company sells you discounted shares and you pocket the difference minus taxes. It is a little bit more involved than that (amen that turbotax deals with this), but the amounts are usually small enough the details don’t matter much.

 

[FireFool]

If you're projecting WHEN you're going to be FI then yes. If you're determining if you PRESENTLY are FI then no. My 2 cents is that if you already are adequately FI to retire don't wait for vesting dates to determine your retirement date. I regret hanging on for an accelerated vesting date to retire - I had more than enough without those funds to retire much earlier. That additional stock will only benefit my heirs. After a certain amount of money time is always more valuable than dollars.

 

[Montecfo]

The question of holding company stock has a lot to do with your risk tolerance. Here's how I viewed it (and certainly reasonable people will differ...)

There are three sources of company stock and I viewed them differently:

1. Outside holdings. I never bought company stock from my broker. My investments were almost all broadly diversified mutual funds (I like the total market finds). Full fund 401k, but also put money in a taxable account.

2. ESPP. I always bought the as much of this as I could. These plans typically offer a discounted purchase price and if you sell when it vests, you automatically make money. My approach was to sell 50% when it vested. That way I was always making some money and taking a bit of cash off the table for personal use (usually investing, but not always). I'd let the other 50% ride.

3. Options/RSUs (I originally got options, then then company switched to RSUs). I had worked other jobs that offered options and had made a little money from them. Mostly they expired worth little or I left before they vested much. I viewed options as potential compensation, but I did not really view them as income. More, a chance at a nice payoff if the company does well. If they didn't yield any profit, oh well.

For a number of years this was fine. I skimmed some money from the ESPP and I ignored the options completely.

Eventually, the company was doing really well. I mean really well. I had accumulated a decent number of ESPP shares and the options were becoming very valuable. It dawned on my that these holding were potentially going to deliver me to Bob Brinker's "Land of Critical Mass" (my frame of reference at the time - equivalent to FI).

I started talking to DW about being able to live off our investments (we had good savings outside of the company stock, but the company stock was what made the difference, me being in my 40's). DW was rather skeptical, so at one point we set a price where if it hit that, we'd cash out enough to pay off the mortgage. We hit that and that's when DW decided that FI was actually possible.

We set another price point where we'd have enough net worth and when it hit that, I exercised the options and a good chunk of the ESPP shares (had a huge tax bill too!). We held on to some shares and vowed to slowly sell that to get it down to a few percent.

By letting the options ride, sure I was gambling. But if they expired worthless, no big deal, we'd be just fine. But they did really well and I was able to stop working at 49.

YMMV

I view things similarly. At one point in my career I was with a company with an ESPP. I bought all I could as it was at a discount and I believed the company's prospects were good.

Vest options I considered part of my net worth. But let's face it: you are not retiring with unexercised options, so how things play out matters more than how you think of them in the interim.

I always let the options ride until I was leaving the company, or a liquidity event such as sale of the company. For perspective, I got some nice pickups from options and stock purchases (privately held stock) early in my career, but nothing in the last 20 or so years. Was not a large consideration for retirement.

I view these as investment decisions, not gambling, but perhaps some view this as semantics.

 

[ut2sua]

My employer offers RSUs as a long-term incentive. When I'm awarded these, even though they vest over a period of time, do I include their worth in my Net Worth?

OP, RSUs are simply a part of your future salary. The only difference is you don't know what the amount will be when vested (value depends on the market at that time). Since all of us are not counting future earning as part of our NW, RSUs should not be counted. Also, as part of your earning, RSUs value will be taxed as your immediate income when vested (no delaying taxes as in options etc.), and there is no way out of that.

 

[TheHobbit]

Another vote for not including them. They are worthless till they vest.