Jun 28, 2017
Many public companies have shifted to using Restricted Stock Units (RSUs) instead of restricted stock and stock options as a key component of executive pay packages.
Changes in accounting for executive compensation programs have contributed to this recent switch in the important area of long-term incentive programs for the executive group.
RSUs awarded to the executive represent a contractual right to receive, in the future, shares of company stock or a cash payment of equal value. The contractual nature of RSUs provides increased flexibility in terms of tax planning and capital structure.
Executive Benefit Solutions (EBS) was asked by a client company to explore ways to increase the value of RSUs for both the executive and the sponsoring company. The results of that work showed that a properly structured Deferred Compensation Plan (DCP) enables the executive to 1) defer RSUs in to the DCP, and 2) diversify at the appropriate time.
In a recent case study, EBS has shared a financial strategy to help the executive decide whether to defer RSUs in to the DCP.
In a new follow-up case study, EBS expands the thinking in this area with another wealth building strategy.
These two case studies highlight the following advantages to the executive of RSU deferral and diversification:
- Flexibility to use RSUs for short-term needs
- Achieving and maintaining full control of the RSUs
- Using the DCP’s diversification feature, if available, to sell RSUs while deferred
And, the sponsoring company benefits by providing a meaningful and appreciated benefit which increases executive participation in the DCP.
Posted by: Hugh Carter, Managing Director, EBS-Richmond; firstname.lastname@example.org