4 Steps to Make the Most of Your Stock Refresher

As a Big Tech employee, you’re likely to get a chunk of your overall compensation through stock benefits such as stock refreshers. Essentially, stock refreshers are incremental stock grants provided to employees who have already received initial grants in the company. 

These grants are broadly similar to RSUs, but they are typically given out after an initial RSU package to keep compensation levels consistent over time. They’re also offered to encourage employees to stick with their current job (aka “golden handcuffs”).

Not every tech company grants refreshers, but if yours does, it’s wise to have a strategy in place to make the best possible use of these grants. Here are four steps you can take to maximize the positive impact of your stock refresher.

1. Track Your Grant Date

Stock refreshers are a type of equity compensation that involve a few key dates. Two of these dates are important in your efforts to utilize stock refreshers successfully:

• The grant date, or the day that your employer issues your stock refresher grant

• The vesting date, or the day that your stock refresher becomes fully vested (and fully usable)

While stock-based compensation can be confusing, keeping track of these dates is an excellent place to start. That way, you’ll know exactly when to take action as your stock vests.

2. Know Your Vesting Schedule

RSUs often follow a predetermined vesting schedule. That means you won’t immediately have access to the stocks included in these refreshers. Instead, you’ll gain full access to these shares over time.

Here’s an example of how RSU vesting schedules can work:

• After being hired at a new company, you receive a grant of 2,000 RSUs. These shares will vest at a rate of 25% annually over four years.

• One year after the grant date, 500 shares (or 25% of your initial grant) will become vested.

• When you hit the four-year mark, all 2,000 RSUs included in the grant will be fully vested.

Stock refresher grants follow similar principles, but the main difference is their grant timing. If your employer offers these grants, you’ll probably receive them at your annual performance review or other milestones throughout your career. Since stock refreshers have a vesting schedule of their own, they’ll allow you to keep receiving benefits after your initial grant.

3. Consider the Taxation

RSUs are a form of equity-based compensation, which is subject to taxation. While deciding how to use these benefits, be sure to consider the impact they could have on your taxes to avoid any unpleasant surprises in the future.

Here’s a brief look at how RSUs (and, by extension, stock refreshers) are taxed:

• When they vest, RSUs are taxed as part of your ordinary income.

• If you sell your shares immediately, there is no capital gain and as a result no capital gains taxes are owed.

• On the other hand, shares that you wait to sell after vesting will be taxed as short- or long-term capital gains (depending on when they are sold). If the value of the shares drop, you can also sell them at a loss and use those losses to offset other gains and/or a portion of income.

4. Create a Plan

RSUs are a powerful form of employee compensation, but it can be surprisingly easy to fall into pitfalls when dealing with these benefits. 

If you aren’t careful, you could end up:

• Investing too heavily in company stock. This is a common mistake among equity benefit recipients that could quickly increase your portfolio’s level of risk.

• Using stock refreshers as a crutch for major expenses. RSUs and stock refreshers are considered additional compensation, but their instability means you should be careful about using them as a form of “normal” cash flow.

• Holding onto stocks for too long after vesting. If you don’t move fast enough after your stock units vest, you could open yourself up to heightened tax rates via short-term capital gains. 

In order to avoid these outcomes and many other potential issues, work with a reliable provider of financial advice for tech employees. The team at Consilio Wealth Advisors can deliver the guidance you’re looking for without the financial jargon you don’t need. Get in touch today and work with our experts to build your stock refresher strategy!

DISCLOSURES: 

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.