I’m a newbie with stocks. Zillow offering both. Can someone explain the difference between these two? Position is Software Eng Mobile with 4 years of experience. What should I be aware of while negotiating?
RSU: Worth their face value. Currently stock price is $56.15, so 100 RSU = $5,615. Simplest thing is to think of them like cash, and they are low risk. Option: Worth the difference between their strike price (effectively current value of stock when you are hired) and the present stock price. Think of them more like high risk investment. Much higher potential pay out, but could also be worth less than RSU, or could even be worth nothing. So if options are granted today, the strike is $56.15. If the stock goes up to $66.15, your single option is now worth $10. Options at ZG are given at a 3 to 1 conversion from RSU. So 100 RSU would convert over to 300 options. Using the above, your 100 RSU are still worth $5,615, but your 300 options are worth only $3,000. If the stock went up to $100 a share, your 100 RSU are worth $10,000, and your 300 opinion is now worth $13,155 (300*(100-56.15)). Other big difference: RSU are yours forever once vested, ZG options expire after 10 years. They have to be exercised (essentially converted in to cash) or they go away. RSU are taxed when they are granted, options are taxed when they are exercised. My understanding is that other tax differences should be negligible, as ZG is publicly traded. How does this effect negotiations? It doesn't. Your stock will be presented as RSU. Converting to option is a choice you make after your start date, and won't factor in to the offer. Negotiate as if RSU are cash.
Great explanation! Does it mean that options are worthy only when the stock hits the roof say atleast a 100% growth?
Options are a nice way to set and forget since you dont incur any tax liability. They also feast or famine since they have a chance of being worth nothing. You can also do ratios of options and RSUs ie 75% rsu 25% options. The breakeven point for rsu to options is like a 40% increase in stock price.
Also worth considering vesting and taxes. Both vest on a regular basis (12mo cliff then monthly for new hire grant, quarterly for refreshers). When they vest RSU will be taxable income. Most people sell some RSU shares to cover the tax. You might vest 100 shares in a month and then sell 20 immediately so you can keep growing with Zillow. It’s typical to sell all 100 shares each month when they vest so they can diversify investments. This means you don’t typically choose when to sell RSUs. They just start vesting and you get the cash. This limits your ability to sell high and avoid selling when the stock is down in a day/month. With NQSO (Options) you will be able to pick your sell date to maximize your return. This will give you the choice to sell in a good tax year, hold when the stock is down, or sell only what you need. As stated above (great reply btw), there is more feast or famine with NQSO. I went this route since I’m long Z and think we can grow higher than 200 in a few years so I don’t want to loose my shares on the way up.
Wow. That is a lot to earn with stock option if the price goes above 200!
My RSUs are always taxed at the much lower capital gains tax rate because I file an 83b election with the IRS with every grant. I can't imagine paying ordinary income instead.
Asurion, what is TC of the offer?
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