How to Sell Restricted Stock Units (RSUs)

Restricted stock units (RSUs) are a type of equity compensation that some employers offer as part of their overall benefits package. They represent a promise to grant company shares once you meet certain requirements. This may include working for the company for a set period of time or meeting specific performance goals. When you meet these conditions, your RSUs vest, giving you full ownership of the shares and the ability to sell them just like any other stock.

If you need help selling RSUs, a financial advisor can help you through the process.

What Are Restricted Stock Units?

Restricted stock units are a form of equity compensation. Through equity compensation, an employee receives shares of company stock as part of their compensation package. 

A company may offer equity compensation for several reasons. Ideally, it aligns the employee’s incentives with those of the firm, so the employee personally benefits if the company succeeds.

Depending on the nature of the benefits, this can also serve as a retention package. It can help incentivize employees to stay with the firm for longer so they can collect the full value of their benefits. 

There are several ways of distributing equity compensation. The two most common are stock options and restricted stock units (RSUs). 

With an RSU, you receive a package of company shares based on certain conditions. Until you meet these conditions, you have no rights to these shares; they are an offer only. Once you meet the conditions, you receive full ownership of the shares. 

Distribution of Restricted Stock Units

There are two main types of restricted stock units: single trigger and double trigger.

• Single trigger. With a single trigger restricted stock unit, you receive the shares when you meet a single condition.
• Double trigger. With a double trigger restricted stock unit, you receive your shares only after you meet all conditions.

The most common condition for a restricted stock unit is a vesting schedule. This means you receive shares after working for the company for a certain period of time.

It’s not uncommon for a company to have tiered vesting schedules, in which you receive shares in stages over time. For example, let’s assume you have equity compensation with the following schedule:

• 1,000 Shares of restricted stock units
• Vesting schedule of 10% per year of employment

Assume you have single trigger restricted stock units, which means you don’t receive anything at first. Then, every year you stay with the company, you get 100 shares of stock, which is 10% of your overall 1,000 shares. After 10 years, all your stock vests, and you own all 1,000 shares.

Performance Triggers

It’s also fairly common for companies to set performance or liquidity triggers on the restricted stock units. For example, a startup company might have an IPO trigger. Under this condition, an employee would not receive their shares unless the company issues an initial public offering (IPO).

Price Triggers

Other companies may have price triggers. This means that an employee would not receive their shares until the company reaches a certain market value, an event triggers or you meet other specific metrics. 

For example, say you have equity compensation with the following schedule:

• 1,000 shares of restricted stock units
• Five-year vesting schedule
• Subject to acquisition by ABC Co.

Here, you have double trigger restricted stock units.

1. You cannot receive your shares until you’ve worked for the company for five years.
2. You also can’t receive your shares until ABC Co. acquires the company.

Once both of those conditions are satisfied in any order, you will receive 1,000 shares of company stock. 

Value and Taxes for Restricted Stock Units

When shares of restricted stock units vest, you receive these shares in full. Unlike stock options, you don’t have to pay for these shares. 

Shares of restricted stock units classify as compensation. As a result, they are added to your taxable income for the year in which you receive them. The value of these shares is based on their fair market value at the time of distribution.

For publicly traded stocks, fair market value is typically determined by the share price. However, for private stock, several factors determine fair market value. These include the number of shares in circulation, the price investors paid for those shares and any assessed value of the company. 

Let’s go back to our case above with the single trigger RSUs. In your first 12 months, you would have no shares or salable rights to those shares. At the one-year mark, you would receive 100 shares of stock, which you own in full.

Your company distributes those shares on January 1, when the stock is publicly trading for $15 per share. Your shares have a value of $1,500 ($15 per share * 100 shares), which add to your taxable income for the year.

How You Can Sell Restricted Stock Units

Selling restricted stock units depends on whether your company is publicly or privately traded.

Once you have met the conditions of a restricted stock unit package, you receive those shares entirely. They are yours to buy or sell, and they are subject to the same conditions as any other shares of stock.

Publicly Traded Companies

With a publicly traded company, this means that you can freely sell your shares as you would any other stock in your portfolio.

The timing of this is entirely based on your personal judgment about the value of these shares in your portfolio. However, it’s common for employees to sell at least some of their shares right away to cover the tax bill. 

Private Companies

Private companies are more difficult because their shares are not freely traded and are not publicly valued. Instead, the value of private shares usually depends on the company’s most recent investment round.

There are also typically trading restrictions on private shares, as you must be an accredited investor to buy and sell this asset class freely. 

In most cases, the best way to sell private shares is to wait for your company to issue an IPO. Alternatively, companies often buy back shares from employees, creating an internal market for their stock.

Beyond that, consider consulting with a financial advisor to determine if and how you can legally sell these shares to interested private investors. 

How RSUs Compare to Stock Options, RSAs and ESPPs

Restricted stock units are just one form of equity compensation. There are also other common offerings, including these.

Stock Options

Stock options give you the right to buy company shares at a set price, known as the strike price. If the market price rises above your strike price, you can exercise your options and capture the difference as profit.

Options can offer significant upside, but they require you to purchase the shares. They may expire worthless if the stock never rises above the strike price.

Restricted Stock Awards (RSAs)

Restricted stock awards (RSAs) are similar to RSUs in that you receive actual shares of stock. However, there is one major distinction: you take ownership of RSA shares upfront, even though they remain subject to forfeiture until they vest.

Because you own the shares immediately, RSAs often allow for an 83(b) election. ¹ This lets you pay taxes on the shares when you receive them rather than when they vest. This can be beneficial if you expect the stock price to rise significantly.

Employee Stock Purchase Plans (ESPPs)

Employee stock purchase plans (ESPPs) offer eligible employees the opportunity to buy company stock at a discount, often through payroll deductions. ESPPs typically do not involve vesting schedules, and the discount itself can be a valuable benefit.

However, unlike RSUs, ESPP participation requires you to use your own after-tax dollars to purchase shares.

What Happens to Your RSUs When You Leave a Company

A job change is one of the most important financial decisions an employee will make, and RSUs can play a major role in that calculation.

Understanding what happens to your equity compensation when you leave a company, voluntarily or not, can help you time your departure wisely. With the right strategy, you can avoid leaving significant money on the table.

The general rule is straightforward: you forfeit unvested RSUs when you leave. If you have 1,000 shares vesting over four years and you resign after two years, you walk away with the 500 shares that have already vested and lose the right to the remaining 500. The company has no obligation to compensate you for unvested shares, and in most cases, it will not.

Timing

The timing of your departure relative to your vesting schedule can make a meaningful difference. Many companies use a cliff vesting structure, in which no shares vest until you have worked for a set period, often one year. After this period, shares begin vesting on a regular schedule.

Leaving just before a cliff or a scheduled vesting date means forfeiting shares that were weeks away from becoming yours. If you are considering a job change, reviewing your vesting calendar before giving notice is a simple step that could be worth thousands of dollars.

Circumstances

The circumstances of your departure can also affect the outcome. Employees who are laid off sometimes receive accelerated vesting as part of a severance package. This is often the case at larger companies or when the layoff is part of a broader restructuring. This is not guaranteed, but it is worth negotiating if you find yourself in that situation.

Voluntary resignation rarely comes with the same consideration. It is one reason why the terms of any severance offer deserve careful review before you sign.

Acquisitions and Mergers

Company acquisitions and mergers introduce another layer of complexity. When a company is acquired, the treatment of unvested RSUs varies depending on the terms of the deal. It can be happen a few ways.

• The acquiring company assumes unvested shares and continues vesting on the original schedule.
• Shares are accelerated and paid out as part of the transaction.
• Unvested RSUs are simply canceled.

If your company is going through an acquisition, reviewing your equity agreement and consulting with a financial advisor can help you understand where you stand.

Clawbacks

It is also worth noting clawback provisions, which some companies include in their equity agreements. These provisions allow the company to reclaim vested shares or their equivalent value under certain conditions, such as a finding of misconduct.

While clawbacks are more common among senior executives, they do appear in broader employee agreements at some firms. Therefore, it is worth looking into before you assume your vested shares are entirely secure.

Bottom Line

Once your restricted stock units vest and you receive your shares, you can generally sell them under the same rules as any other stock you own. If your employer is publicly traded, you can sell the shares directly through your brokerage account, subject to any company-specific trading windows or blackout periods. If the company is privately held, selling can be more complicated. You may need to rely on company buyback programs or tender offers. Either way, it is worth it to work with a financial advisor to determine whether a legal sale to private investors is possible.

Investment Planning Tips

• Stock options are another common form of equity compensation. Employees purchase shares at a set price instead of receiving them directly. While this can be more expensive up front, it could also pay off significantly in the long run. 
• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, begin now.

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