Are You Sure You’re Ready for an RSU Release?

February 14, 2024

Murphy’s law states that anything that can go wrong will go wrong, and there is no greater example of this than a scheduled release of restricted stock units and restricted stock awards.

As a stock plan administrator, it is your responsibility to manage the entirety of the vesting and release of shares to company employees, and there are few other times where more eyes are on you and your role as an Admin.

Employees and executives alike are both excited and eager to see their shares released into their accounts, and it’s up to you to ensure both smooth delivery and clear communication. But don’t worry, I know the stakes can be high, but with our lapse event checklist, you can rest easy knowing that your company’s equity compensation will reach its destination!

Step 1: Prepare in Advance - Give yourself time

Prepare in advance? It sounds too on the nose, doesn’t it? But time and time again, I have seen new administrators overlook this simple first step that ends up causing a butterfly effect of issues.

The first thing you need to do each quarter is review your reports and note the specific days on which participant RSUs are set to become vested. Doing this will allow you to set aside ample time before release to ensure all relevant parties are alerted to the upcoming event and can discuss any nuances or potential concerns.

Step 2: Ensure Employee Data is Up to Date

Current employee data is crucial to ensure a successful release. Incorrect contact details, tax residency, and employment status can all lead to a gordian knot of complications that can take months to reconcile.

Take the time to ensure your database is current, and you can thank me later!

Step 3: Review Performance Conditions - If Applicable

Performance Stock Units and Performance Stock Awards (more commonly known as PSUs and PSAs) have seen a rise in relevancy over the years, and when performance-based awards are part of a release, It is no longer sufficient to only take note of the service-based requirements of the award.

Performance awards typically have thresholds that determine the payout of an award upon measurement date, and you need to correctly verify these metrics to avoid any incorrect payouts to employees.

It’s always best practice to ensure that performance metrics have been satisfied and recognized as stated in relation to their grant agreements.

To learn more about reporting performance awards, NASPP members can refer to our handy cheat sheet below!

Performance-Award-Reporting-Reference-Guide

Step 4: Communication

Clear communication is a crucial skill for any administrator, but never is it put more to the test than when preparing for an upcoming lapse event.

Setting expectations and ensuring employees are aware of possible tax implications or responsibilities will go a long way in alleviating questions and concerns.

Remember, nobody likes taxes, and nobody likes being blindsided. Best to avoid combining the two! Make sure ample time is given to allow employees to not only make their tax elections but to understand the options available to them.

Step 5: Speaking of Taxes

Before release, review tax withholding and reporting requirements for the jurisdictions in which your employees reside to ensure both timely reporting and local compliance.

Ensure you have the necessary information to calculate the taxes due.

Step 6: Connect with your External Service Providers

Many Administrators work with external service providers such as administration platforms and transfer agents. You must confirm that they are aware of the upcoming event and have everything they need from you to ensure both a smooth and efficient release.

It is also essential to communicate openly with your external service providers, as technical issues can and will happen. Open communication will ensure all parties are aware of any ongoing issues, and the appropriate steps can be made to either rectify the problem or ensure timely communication is sent out to the affected employees about any potential delays.

Step 7: Perform a Pre-Release Audit

Okay, we’re almost there!!

You’ve taken the necessary steps to ensure everyone is thoroughly aware of the release, and the prep work has been done to identify areas of concern.

Now is the time to put theory into practice. Running a pre-release report or “Test Release” can help you understand the result of the lapse before actually performing it. The reports generated from your pre-release will help you look over crucial information and determine if things are showing as expected.

Confirm the overall size of the release, the shares due for taxes, the net amount released to the participants, and everything discussed in the earlier steps.

Step 8: Perform the Release!!

Now that you’ve done your due diligence and completed the previous steps, it’s time to run the release!

Ensure all supporting documentation, such as taxation reports and TA letters, align with your expectations.

Step 9: Follow Up After the Release

Look, we’re all human, and mistakes happen. After a release, I’ve always found it beneficial to follow up with employees through mass email or other preferred communication mediums.

The reason for this is you want to get ahead of any potential issues and ensure employees know that they’re being taken care of. By actively reaching out, you allow them to address any concerns and feel heard. This will create a sense of trust between yourself and the employees and even help identify possible areas of improvement for subsequent lapses.

I highly encourage this practice, as you don’t want to lose employee trust, and this step can help create a positive environment around a sensitive event.

Conclusion:

A successful RSU release requires diligent preparation and coordination. By verifying employee information, communicating clearly, and working closely with service providers, you can ensure a smooth and efficient process for everyone involved, however, for those of you that may have limited experience with RSUs, it's important to have a firm grasp of the essentials and is why we created our RSU essentials course.

The RSU Essentials program is a comprehensive course tailored for individuals new to equity compensation or those with limited experience, aiming to equip them with a thorough understanding of restricted stock units. Participants will delve into the structure of RSUs, explore global program considerations, and master key compliance processes for tax, accounting, and more, including managing dividend equivalents, retirement provisions, and award deferrals. This program represents an ideal development opportunity for newcomers and professionals seeking to broaden their expertise in equity compensation!

By Jason Mann
Content Director

NASPP