RSUs demystified: How vesting, taxes, and selling really work

Restricted Stock Units (RSUs) are one of the most common forms of equity compensation offered to executives in the music and entertainment industries. But most people don’t fully understand how they work, when they’re taxed, or how to make smart decisions about when to sell.

If you’ve received RSUs or expect them as part of a promotion, this guide breaks it down in plain language.

What Are RSUs?

RSUs are a promise from your employer to grant you company stock in the future. You don’t actually own the shares when they’re granted. They become yours only when they vest.

Once vested, they’re considered income and are usually settled in actual shares of stock.

Why Companies Offer RSUs

Companies use RSUs to retain talent and align employee performance with company success. They encourage long-term thinking by tying compensation to the company’s stock price.

For employers, RSUs are:

• Cost-effective compared to upfront cash bonuses
• A tool to reduce employee turnover
• An incentive for employees to care about the stock’s performance

The Upside and Downside of RSUs

Upside:

• No upfront cost to you
• Potential to benefit from company growth
• Can result in substantial payouts if the stock performs well

Downside:

• Taxed as income when they vest, whether you sell or not
• No control over timing of income
• Risk if the company’s stock price drops
• Can lead to overexposure to your company’s stock

The Psychology of RSU Decisions

One of the most important questions I ask clients is this:

If you were paid the same amount in cash instead of stock, would you turn around and use it to buy your company’s stock?

If the answer is no, that’s a strong signal that you may not want to hold onto those shares post-vesting.

Most executives are already heavily invested in their company. Your salary, bonus, benefits, reputation, and time are all tied to the business. Holding large amounts of company stock adds more risk to an already concentrated bet.

Sample RSU Grant Language

Here’s what a typical RSU grant might look like:

You have been granted 4,000 Restricted Stock Units under the [Company Name] 2025 Equity Incentive Plan. These RSUs will vest in four equal annual installments beginning on the one-year anniversary of the grant date, subject to your continued employment.

Key details to review:

• Vesting schedule
• Grant date
• Any performance conditions
• What happens if you leave the company

Common Vesting Schedules

RSUs usually vest over time. A few common examples:

• 4-year vesting with 1-year cliff: 25 percent vests after one year, then monthly or quarterly after
• Straight-line vesting: Equal portions vest each year over a set period
• Performance-based vesting: RSUs vest only if specific targets are hit

How RSUs Are Taxed

At Vesting:
The value of the vested shares is treated as ordinary income. It’s added to your W-2 and taxed accordingly. Your employer will usually withhold shares to cover the taxes.

Example:
If 1,000 shares vest at $30 per share, that’s $30,000 in taxable income.

At Sale:
If you sell the shares after they vest:

• Any gain from the vesting price to the sale price is taxed as a capital gain
• If held for more than one year, it’s a long-term gain and taxed at a lower rate

*One common issue is that companies often withhold taxes at the minimum federal rate (typically 22 percent), which is usually not enough for high earners, leading to a surprise tax bill if you don’t plan ahead.

Case Study: With a Plan vs Without

Scenario:
Jordan is promoted to VP and receives 5,000 RSUs, vesting over 4 years. The company’s stock price is $40 at grant. Over the next year, the stock rises to $50.

Without a plan:
Jordan’s first 1,250 RSUs vest at $50.

• $62,500 is added to income
• Taxes are withheld in shares, but Jordan keeps the rest
• The stock drops to $35 a few months later
• Jordan still owes tax on the $50 per share value but only has $43,750 in value
• No strategy for diversification or tax planning

With a plan:
Jordan models the tax hit ahead of time, elects to sell shares at vest

• Sells all 1,250 shares immediately at $50
• Pays taxes from proceeds, locks in $50 per share
• Uses part of proceeds to build emergency savings and invest in a diversified portfolio
• Avoids the stress of a future price drop and stays on track with long-term goals

This is a simplified example, but the difference in outcomes is real.

Final Thought

RSUs can be a powerful wealth-building tool if you understand how they work and treat them as part of your full financial plan. Make decisions based on what the stock represents, not just the number of shares you receive.

Know when they vest. Know the tax impact. And have a clear sell strategy before your shares hit your account.

Need help making sense of your equity?
→ Download the Executive Comp Checklist
→ Book a call to review your RSU strategy

---