Restricted Stock Units

Restricted Stock Units (RSUs / PSUs)


Restricted Stock Units and Performance Stock Units are the most commonly used form of long-term equity compensation.

They offer a number of benefits to executives and to the plan sponsor, but one issue for executives is the control over the timing of taxation.

As outlined in the video, a properly structured nonqualified deferred compensation plan could provide executives an opportunity to regain control over the timing of the taxation of RSUs and PSUs as well as a number of other benefits.

In summary, it may be possible to significantly enhance the value of the total rewards package for executives, other key employees and Directors by allowing the deferral and diversification of RSUs and PSUs in a properly structured nonqualified deferred compensation plan.

Potential Benefits of the Deferral and Diversification of RSUs

Benefits for Executives

  • Deferral of federal income taxes on the RSU/PSU income and, in some cases, reduction or elimination of state income taxes.
  • Appreciation of 100% of RSU/PSUs vested rather than only on the net after-tax number of shares.
  • Management of the distribution of benefits in accordance with personal financial goals
  • Diversification: Reduction of exposure to a concentration of net worth tied to company share price.

Benefits for the Plan Sponsor

  • Flexibility of plan design
  • Simplified stock administration

Issues, Risks And Other Considerations

  • Exposure to creditor risk: Deferred compensation plan benefits represent a legally binding obligation of the company typically funded by corporate assets set aside in a trust. However, in the event of bankruptcy or insolvency, trust assets are exposed to the claims of creditors.
  • Applicability of ordinary income tax rates: Benefits paid represent deferred compensation taxed at ordinary income tax rates.
  • Financial statement impact: It is important that the plan be properly structured to ensure favorable accounting treatment.

Get Started

Take the first step to enhance the value of your total rewards package

To ensure that your company’s total rewards package for executives and other key employees is competitive, we suggest you consider a nonqualified deferred compensation plan that permits the deferral and diversification of RSUs and PSUs.

An EBS consultant, supported by the firm’s financial analysis group, can work with you to determine the potential benefits to executives and other key employees and the financial impact to the company.