Quick Guide: How to Value RSUs

Restricted stock units (RSUs) are a common component of compensation packages at many major tech companies. Whether you’ve already been granted RSUs or are evaluating a new position that includes RSUs as part of your compensation package, it’s essential to understand the financial implications for your portfolio. 

Do you know how to value RSUs?

Unfortunately, valuing restricted stock units is not always as straightforward as looking at the current fair market value. Instead, consider multiple angles to examine RSUs and determine if the new offer on the table is worth your time and adequately compensates you for your skill and experience.

Here’s what you need to know about valuing your RSUs, accounting for taxes, and determining if a job offer is fair to you and your talents.

What Affects an RSU’s Value?

Several variable factors contribute to determining the dollar value of your RSUs. It is prudent to weigh all three of these variables before deciding whether a job offer is a solid one or how your portfolio will weather market volatility. 

Here are three factors that influence value.

Fair Market Value at Grant Date and Vest Date

Once your restricted stock units vest, you receive a certain number of shares in the company. This is the figure most tech employees are concerned with: What are the RSUs worth on the market if they decide to sell them immediately upon vesting?

Oftentimes, RSUs are calculated based on the stock price at the time of the valuation date. But the value of those stock units can fluctuate based on the company's performance in the years following the valuation. They will be at fair market value on the vesting date, which could be for the better if the company has had a successful run since the grant date.

Market Volatility

Maybe your compensation package includes RSUs that rapidly increase or decrease in value. This type of market volatility often means that your RSUs are worth less when figuring out how much the company should compensate you. 

The risk inherent to volatile RSUs means you may have a more robust compensation package in other ways, like cash bonuses or salary payments.

However, this could also be to your benefit. You could have more RSUs as part of your pay. If the market increases, so does their value—and the value of your portfolio. On the other hand, if the company goes under, your RSUs will be worth nothing at all. It pays off to do your research on the company’s history and potential for growth!

Vesting Schedule

Unfortunately, your RSUs are essentially worth nothing until they vest. They’re not a part of your portfolio, and your take-home pay does not reflect the restricted stock units you may be granted in the future. 

Ensure you understand the requirements for acquiring your RSUs, including the vesting period and the minimum service requirement.

If you can’t commit to staying in the job position for the full term before your RSUs vest, then it might not be the best offer for you because you will be leaving money on the table.

Accounting for Taxes

Calculating taxes on RSUs is another hurdle when vesting and valuing your portfolio. RSUs are not taxed when they are granted, but they are taxed upon vesting, and they become a part of your income. As a result, many companies withhold a portion of the RSUs to be sold to cover the tax costs associated with the new income.

This means that you will need to know your effective tax rate, as the RSUs sold to cover it can significantly impact the value of those RSUs.

There are a few ways to reduce taxes on RSU income, so make sure you know the strategies to keep as much as possible of your hard-earned compensation.

How Do You Value RSUs in a Job Offer?

When you are weighing a new job offer that includes RSUs as part of your compensation package, you have several considerations you need to make. The first question to ask is whether it is worth accepting a lower base pay in exchange for more RSUs. This could be a risky proposition, but it can also pay off handsomely in the long run if you can wait until they vest for payment.

Will you be missing out on unvested RSUs at your current position? Leaving before vesting means that you miss out on that portion of your income. This is why many people remain locked into their current positions, hoping to acquire that income after years of hard work.

If you will be leaving RSUs on the table, you may be able to negotiate with the new company to account for what you would be missing out on by leaving the previous job early. 

Keep in mind that there are inherent risks with accepting RSUs as compensation. They are worth nothing until they vest, meaning that you have to commit to a job for a set period. Problems arise when you start a new job and find that you are unhappy in the position.

It is also worth noting that the current fair market value will not necessarily be the same fair market value at the time they vest. Do your due diligence to research the company’s performance history over time. Steady, reliable growth is often preferable to risky volatility in many instances.

Evaluate Your Compensation Package with Consilio

Whether you are weighing a new position or simply trying to understand the complexities of your existing portfolio, there are seemingly endless factors to weigh with RSUs. Professionals like Consilio can help break down the job offers and provide more insight into the pros and cons of each opportunity.

Consilio specializes in helping tech professionals with their unique compensation structures. We have experience with restricted stock units, cash bonuses, and other benefits that you’ll have to consider while evaluating job offers. 

Are you missing out on the full value of your RSUs? Contact us today and let's chat!

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