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I'm a total noob when it comes to stock, especially, various employer stock grants. You'll see from my question... But I'm hoping someone can explain this so that third grader can understand
I was given a stock grant by my employer of Restricted Stock Units (RSU). In my offer it was stated that I will receive RSUs in the amount equivalent to certain dollar amount, no more details.
From what I see in my account, the total value of units I received is 4 times the amount stated in the offer, and they vest over the 4 year period.
So, let's say they gave me $1000 worth of units, and the price of the unit (determined through some formula based on average price of stock over some time, like 14 days prior to stock grant) was $10/share. So I received a total of 100 shares. At this time I don't really have anything, because I'm not vested until a year from the date of the grant. At one year mark, I receive 25 units, then 25 units more after two years and so forth.
My question is - what happens if the price of the stock goes up or down after the RSU was granted but before employee is vested?
Let's say in year the stock price is $12 instead of $10/share. Does this mean that I am vested in 25 shares at $12/share? Or does the price of the stock on the date of grant still matters?
Basically, do I have shares or do I have dollar amount?
You have shares. So your value will increase with the market. When your shares vest you will receive the market value.
Keep in mind, vesting is a taxable event. In my case, some of the shares are withheld to cover withholding taxes. So of the 25 shares you are awarded, you may get 18 shares after taxes.
The value of the shares on the day you vest is your cost basis. So if the value continues to increase, and you sell the shares, you will be subject to capital gains tax. (Selling price of shares - price of shares on vesting date = capital gain)
So, to summarize, on the day I'm vested, I will receive my 25 shares, and they will cost whatever the market price is on that day (so far, the price went UP since the day of the grant, but who knows what happens in a year). Vesting is a taxable event, so I will have to pay taxes on the total cost of 25 shares on the vesting day.
I'm not quite clear why my taxes would be withheld in shares. Isn't it just income that has to be reported on my tax return, and then payed for in taxes? I will see in a year, I guess.
I do understand about capital gains. Basically, if I don't sell them for a year after vesting, it will be long term gains when I sell and taxed at a rate lower than ordinary income, otherwise - short term, which is taxed as ordinary income.
to put it all together. Once they are granted the amount of money you have is subject to the price fluctuations of the stock in the market. When it vests, it is taxed immediately as income and the amount you are taxed is subtracted from the shares. So if you are granted 50 shares and at the time of vesting they are worth $75/share you will actually only end up receiving ~30 shares after taxes.
I have my first set of RSUs vesting next week.
to put it all together. Once they are granted the amount of money you have is subject to the price fluctuations of the stock in the market. When it vests, it is taxed immediately as income and the amount you are taxed is subtracted from the shares. So if you are granted 50 shares and at the time of vesting they are worth $75/share you will actually only end up receiving ~30 shares after taxes.
I have my first set of RSUs vesting next week.
Thanks. Now, back to my approach I thought I'd use when I was signing this offer: treat this as a "free money" and quit watching the company stock!
couple of things. Its not free money. Its money in return for your work. You should treat it like any other money you receive.
For e.g. If I gave you 2000 USD tomorrow, and asked you to invest it the best way you can, would you buy your company's stock with it?
If you answer no, then you should sell your RSU stocks immediately and re-allocate into your preferred investment choices.
Its standard tax law , wherein your RSU vest is treated equivalent to a bonus payout.
Bonus payouts are withheld at supplemental rates.
Just like you never see the cash withheld, you never see the stocks either.
Let me explain about "free money". When I was negotiating my offer, I decided to ignore the stock grant part of it (as well as bonus, which was written into the contract as well), and concentrated on getting base compensation to the level that made leaving my previous employer worth it l. My logic was "I may not get the full bonus, I have no idea how the stock will behave over the years. I need to know that no matter what, I'm getting AT LEAST enough to justify this move. The rest is gravy". But now, when I received the grant, I find myself planning what I can do with the money, and I think it may lead me into unhealthy state of watching the stock price . Need to go back to my original strategy.
And yes, I'm thinking about selling at least half of the shares as soon as they vest. I love my company and think we have a bright future, but I don't want to invest money in it, just my time (as long as I'm paid, of course!)
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. Need to go back to my original strategy. 
