Wednesday, February 27, 2008

Accounting for Restricted Stock Units

Bonus season has come for most, and as many companies do, bonus compositions are part cash and part company equity. Prior to SOX, companies would grant stock options which were very confusing for most employees but advantageous to company balance sheets, but post SOX, many grant restricted stock units (RSUs). I myself received some, and as the month is about to end, I had to wander, how do I account for RSUs? (For more detailed information on RSUs, click here)

The IRS would suggest that at the point of the grant, the RSUs are worth nothing until they vest, at which point, I would have to pay taxes on the total value of the RSUs converting into company stock.

However, I'm not a fan of the IRS, not only because they take my money but also because the grants do have some real value.

When I think about, it is an asset of mine, however illiquid it may actually be. If I continue working for this company, it will become liquid, and if I don't make it to the vesting period, there is some real monetary value that I'm losing when I switch companies.

So I've decided that the best method would be to do a mark-to-market valuation every month of my RSUs and add that value to my assets whenever I calculate my networth.

1 comment:

Joshua said...

Just to take this a little farther down the path...what if you were a corporation? Wouldn't it be:

DR) Restricted Securities
CR) Deferred Revenue

with monthly mark-to-market valuations until vesting, when it becomes

DR) Securities
DR) Deferred Revenue
CR) Restricted Securities
CR) Revenue

(DR = debit, CR = credit)