Why do a lot of tech companies give a significant portion of compensation in RSU? What are the pros and cons of RSU vs base? I have an offer with high TC (166) but lower base (105) and another offer that has just a high base 141 with no bonus, equity, etc. I know everyone here focuses on maximizing TC. However is that always the approach that leads to the most money in your bank? For example I know that equity is taxed at a higher rate than base salary. I'm very confused with how much liquid, disposable income each of these offers will result in after taxes
let’s say a company has a choice of giving a $1,000 cash bonus versus giving 100 RSUs at a market price of $10. Which is “cheaper” or is it the same? From an accounting perspective, the cost is the same since the vesting is immediate—i.e., $1,000 is recognized by the company under both scenarios by recording a debit to compensation expense—but the corresponding credit is different. To avoid getting too technical with the accounting (which I could get wrong since I’m not an accountant), think of it this way: the cash bonus reduces the amount of cash on hand while the RSU grant results in the company issuing 100 new shares, thereby diluting existing shareholders. If the company wants to conserve cash and doesn’t expect shareholders to be concerned about the dilution, then granting RSUs is, in that sense, “cheaper” for the company. But if the company is trying to hit a specific earnings per share target, the number of shares (the denominator in the EPS calculation) just went up, meaning earnings per share just went down.
RSU shares could be newly issued but could also be from the own shares the company has in its portfolio (eg Microsoft owning MSFT shares). For the rest I believe you’re correct. You also need to remember that most stock plans vest in multiple years, so from a cash flow perspective (though not from a P&L one) the company is better. Lastly, RSU is an incentive for good employees to stay longer.
Defers pay, makes you feel part of company, allows pre IPO to defer pay even further, ties you to a vesting schedule aka golden handcuffs
Also may create a cult following who HODL re: Enron
So let's say the company's stock price tanks. Does that effectively mean that your compensation just tanked?
Being literally invested in the company encourages different and more long term planning. I’m fairly senior and can say this is a good idea in my experience. Around 80% of my TC has been from stock for years. Think about how that may influence people, especially if it doesn’t vest quickly.
This goes both ways BTW, you work hard company stock tanks, also end up quickly losing all your hardworkers
That’s why they give you more at current price. If whole economy bad you won’t have a lot of choice anyway (like 2008). When the stock rebounds you have a lot of money. Voila.
So base salary is preferable to RSU. So for my offer with 105 base and 166 TC, would it be advisable to attempt to negotiate my base up even if it comes at the expense of TC? (this is bay area btw)
Depends on if you think the company is going to go up or down. It's a cheap way to get stock, and also the only possible way to get preIPO stock if you care.
Also, how do I estimate how much I'll have after all taxes? I can't seem to find a clear explanation on how to figure this out that takes RSUs into account
For a public company it’s just ordinary income. But valued at the time of vesting. So make some kind of projection for future stock value if you want to model it out.
Ya whatever year it vests in it just counts as normal income. The value of RSU’s is if the company stock price shoots up such as amzn, aapl, nvda, and the FANG stocks in general. 50k of nvda stock granted 2 years ago would be worth close to 300k today once it’s all vested
In case of a publicly traded company, for the employee, same amount of cash is better than RSU because you get the cash right away while you get the RSU later in installments. There is also a risk that your RSU will not perform as well as some other investment that you could have bought with your cash. If you think your company's stock is the best possible investment you can have, then it is a wash as you can just buy that stock with your cash. For pre-IPO companies it is a different matter.
Why everyone says rsu has higher tax than base salary? They are same, no difference.
It feels like more cuz more is held by employer but returned next tax filing, so yes essentially the same
If you expect stock to go up, RSU is better. It is as though you bought all that stock today without having to put up the capital upfront. Tax is the same - RSU vs Cash.
What? We are talking about the difference of getting the same amount in cash vs. RSU. If you think your company's stock is the best investment, you can spend all your cash on it's stock. If you have better ideas for investment then you can do that. If you buy your company's stock but decide to invest differently six months later, you can do that. Under no circumstances same amount of RSU is better than cash.
It is same as cash for liquid RSUs. You sell on vest and buy what you like. Difference is the stock appreciation you get from grand time to vest. You get this without having to invest your money.
I'm a fresh college grad btw if that makes a difference or helps explain why I'm so clueless