Restricted Stock Unit (RSU) Releases for Public Companies: Risks & Solutions

Written By: Michelle Tomasetti

Processing Restricted Stock Unit (RSU) releases for public companies isn’t a walk in the park. In fact, it’s more like navigating a complex maze with a fair share of risks. But if you know these risks going in, you can significantly increase your chances of keeping them in check. 

That’s why in today’s note, we want to highlight the top 5 risks associated with RSU releases and provide valuable tips on how you, as a public company, can mitigate them. 

By understanding and addressing these risks proactively, you can safeguard your processes and ensure a smooth experience for your employees and stakeholders.

5 Risks Associated with Processing Restricted Stock Unit (RSU) Releases

1. Stock Price Volatility

As a public company, the value of RSUs is directly linked to the price of your  underlying stock. This means significant fluctuations in stock prices can have a substantial impact on the value of RSUs. 

This risk becomes even more pronounced when RSUs vest over an extended period. Employees may be exposed to multiple price swings before they can cash in and sell shares, potentially leading to considerable financial uncertainty on their end.

2. Tax Troubles

When RSUs vest, your employees will typically be liable to pay taxes on the fair market value of the shares, even if they don’t sell them immediately. This can result in a significant tax burden, particularly if a large number of RSUs vest simultaneously. 

That’s why it’s crucial to educate your employees about the tax implications beforehand, and lend them a helping hand in managing their tax obligations.

3. Compliance Risks

Processing RSU releases means dancing to the tune of compliance rules and regulations. If you miss a step, you can easily find yourself in hot water with the likes of the Securities and Exchange Commission (SEC).

To stay on the safe side, it’s crucial to set up robust internal controls and processes that ensure compliance throughout the RSU release journey.

4. Fraudulent Activity

Instances of fraudulent activities related to RSUs have been reported, including unauthorized selling of unvested RSUs or employees using RSUs as collateral for loans. 

To mitigate this risk, you should implement stringent controls, such as regular audits, to detect and prevent fraudulent behavior. 

Additionally, educating employees about the importance of safeguarding RSUs and promoting a culture of transparency and ethical conduct is vital.

5. System Failures

Imagine if the system you rely on for RSU releases suddenly goes haywire. System failures or technical glitches could result in employees not receiving their RSUs or receiving them incorrectly.

That’s why dependence on a reliable system for processing RSU releases is crucial. No matter your system, you should have contingency plans in place to address system failures promptly, ensuring the continuity of the RSU release process without disruption.

Additional Tips for Mitigating Risks

Aside from avoiding the risks above, what else can you do to safeguard your RSU releases? 

Here are some additional tips to implement:

  • Engage a Qualified Third-Party Administrator: Collaborating with a qualified third-party administrator can provide expertise and ensure compliance with legal and regulatory requirements throughout the RSU release process.
  • Establish Clear Policies and Procedures: Develop well-defined and concise policies and procedures that outline the steps involved in RSU releases. This helps ensure consistency, minimize errors, and provide clarity to all stakeholders involved.
  • Conduct Regular Training: Regular training sessions for employees involved in the RSU release process are essential. Educate them on company policies, procedures, and the risks associated with RSUs. This empowers employees to make informed decisions and reduces the likelihood of errors or non-compliance.
  • Implement Robust Monitoring and Reporting Systems: Employ a comprehensive system to monitor and report on RSU releases. This system should track the progress of releases, identify potential issues, and facilitate timely resolution.

Bottom Line

Processing Restricted Stock Unit (RSU) releases for public companies entails certain risks that must be diligently managed.

But armed with the knowledge of the top 5 risks – stock price volatility, tax troubles, compliance risks, fraudulent activity, and system failures – you’ll be prepared to face these risks head-on.

Following additional tips such as engaging third-party administrators, establishing clear policies, conducting regular training, and implementing robust monitoring systems will also help ensure a smooth and secure RSU release process. If you’d like to streamline your equity administration process and mitigate risks with expert support, consider partnering with Infinite Equity. With our comprehensive expertise, we’ll help you navigate the complexities of RSU releases and ensure compliance every step of the way. To learn more, reach out to us today.

Glass Lewis Takes Aim at Executive Stock Ownership for 2024

Glass Lewis Takes Aim at Executive Stock Ownership for 2024

Public companies, take note - Glass Lewis has executive stock ownership guidelines firmly in their sights for the 2024 proxy season. Recently updated commentary makes...
Unlocking the Secrets of Stock Ownership Guidelines

Unlocking the Secrets of Stock Ownership Guidelines: 5 Must-Know Tips for Public Company Executives

Stock ownership guidelines (SOGs) are a crucial part of corporate governance for public companies. These guidelines outline the minimum amount of stock executives and directors...
Restricted Stock Unit

Restricted Stock Unit (RSU) Vesting: Safeguarding Your Process Against Risks

Processing the vesting event for Restricted Stock Units (RSUs) can be a tricky business, with potential risks lurking around each corner.  Below, we'll explore the...