Increasing the Value of Restricted Stock Units (RSUs) Through Deferral and Diversification

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;