Does your bonus plan include Restricted Stock Awards?



Executive compensation can be paid in multiple ways, including the use of company stock through a Restricted Stock plan. Restricted stock is an award of stock with some sort of restriction. The most common is a time restriction, but it could also be based on specific performance metrics. These details are outlined when you receive the award.

Let’s walk through an example of a typical Restricted Stock award that has a time restriction created by a vesting schedule. You receive an award of 500 shares of company stock on January 1 with a vesting schedule of four years – 25% vested each year.  One year from the original date, you will have 125 shares vested. You will continue to receive 125 shares each year until the end of the four years.

Date 01/01/2021 01/01/2022 01/01/2023 01/01/2024
Shares Vested 125 125 125 125

Once shares have vested, you own the shares outright. You can sell the shares or transfer the shares to another account.

Taxes are triggered at the time of vesting, not at the time of the award. This provides an opportunity for income deferral with the hope that the stock price will increase, thus creating an increased value at the future vesting.

Upon vesting, you will recognize income equal to the stock’s fair market value. This income is subject to ordinary income tax as well as Social Security and Medicare taxes. The company may offer to coordinate the various tax withholdings by selling a portion of the vested shares. One item to note is that the minimum Federal withholding is normally insufficient. It is important to coordinate with your CPA to ensure proper tax coverage.

If you elect to hold the shares, capital gains or losses apply upon the future sale of the shares.

We look forward to working with you to develop a strategy to incorporate your equity awards into the overall planning.

If you have more financial questions, don’t hesitate to ask your Family CFO. We do more so you can too.

© 2022 Moneta Group Investment Advisors, LLC. All rights reserved. Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC.  Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice for any individual. Examples contained herein are for illustrative purposes only based on generic assumptions. This is not an offer to buy or sell securities, nor does it represent a specific recommendation. Please speak with a qualified tax, legal or investment professional before making any changes to your personal situation.


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