Contributed by: Caleb Christian, CFP®, CLU®, ChFC®
For many corporate executives and key employees at oil & gas companies such as BP, Chevron, or Shell, compensation extends beyond salary and annual bonuses. Increasingly, companies are using Restricted Stock Units (RSUs) as part of long-term incentive plans. While RSUs can represent a substantial portion of total compensation, they also carry complexities—particularly in taxation, portfolio concentration, and liquidity management—that require a deliberate and coordinated strategy.
RSUs can be a powerful tool for wealth accumulation, but without proper planning, they may also create unintended financial and tax consequences. As with most forms of equity compensation, understanding the details of your grant agreement and aligning your RSU strategy with your broader financial plan is essential.
What Are Restricted Stock Units (RSUs)?
An RSU is a promise from your employer to grant you company stock in the future, typically contingent on meeting certain vesting conditions. Unlike stock options, RSUs do not require you to purchase shares at a set price. Instead, once vested, the shares are transferred to you outright. The two most common vesting conditions are:
- Time-based vesting: Shares are granted over a set schedule, such as annually over four years.
- Performance-based vesting: Shares are granted upon meeting specific company or individual performance goals.
While RSUs do not have the same “underwater” risk as stock options, they also do not provide the flexibility of deferring exercise—once vested, they are generally taxed as ordinary income.
The Tax Timing Challenge
One of the most important aspects of RSUs is the timing of taxation. In most cases, RSUs are taxed when they vest, not when they are sold. This creates a unique scenario: you incur a taxable event before you may have decided to sell the shares. At vesting:
- The value of the shares becomes ordinary income, subject to federal income tax, Social Security, Medicare, and, in some states, state income tax. View our 2025 Tax Tables here.
- Employers often withhold a portion of shares or cash to cover estimated taxes, but this withholding may be insufficient if your total income puts you into a higher tax bracket.
The challenge is that taxation occurs whether or not you immediately sell the shares. Holding the stock after vesting exposes you to market risk without altering your tax liability for that vesting event. This makes proactive tax planning critical.
Concentration Risk and Portfolio Strategy
Executives often face a second, equally important issue: portfolio concentration. RSUs can accumulate quickly, leading to an overexposure to company stock. While loyalty to your employer is commendable, tying too much of your personal net worth to the performance of a single company, especially the same company that provides your income—creates significant risk.
Balancing diversification with the desire to participate in your company’s long-term growth requires thoughtful planning. Strategies may include:
- Selling vested shares systematically to fund a diversified portfolio.
- Using proceeds to build exposure to other asset classes, including private market investments.
- Coordinating RSU management with other compensation elements such as stock options, deferred compensation, and retirement accounts.
A deliberate sale strategy can help reduce volatility in your personal wealth while allowing for upside participation.
The Role of 83(b) Elections
In rare cases—such as with certain RSU structures that settle in actual restricted stock—an 83(b) election may be available. This allows you to pay taxes at grant rather than at vesting, potentially locking in a lower tax rate if the stock appreciates significantly over time. However, this approach carries its own risks, particularly if the stock declines in value or if you leave the company before vesting. Given the complexity, any consideration of an 83(b) election should be made in coordination with both a tax advisor and your wealth management team.
Coordinating RSUs with Your Broader Wealth Plan
RSUs are rarely an isolated financial decision. They interact with virtually every component of your financial life—from cash flow and tax planning to estate considerations and charitable giving. For example:
- Cash Flow Planning: If you plan to hold shares post-vesting, ensure you have liquidity to meet tax obligations without selling at an inopportune time.
- Charitable Strategies: Donating appreciated RSU shares after the holding period can provide both tax efficiency and philanthropic benefit.
- Estate Planning: RSUs can complicate estate transfers, particularly for executives in closely held companies. Proper structuring may reduce estate tax exposure.
Integrating RSU decisions with your investment strategy, retirement plan, and insurance coverage helps ensure that equity compensation works in harmony with your long-term objectives.
Case Study: Managing a Significant RSU Grant in Texas
Consider an executive who receives a multi-year RSU award representing nearly 40% of his or her annual compensation, is charitably inclined, and whose portfolio is heavily concentrated in that stock. As vesting dates approach, the potential tax liability alone is projected to exceed $500,000 in the first year. We would coordinate with the family’s CPA to calculate optimal sale amounts at each vesting date, ensuring sufficient liquidity for tax payments without excessive market exposure.
We would also design a diversification plan to gradually reduce company stock holdings, starting initially at over 60% of the client’s portfolio, to eventually settle at under 25% of the portfolio presence, within three years. Proceeds could be allocated to a wide variety of after-tax investment solutions, in both public and private markets, with a portion directed toward a donor-advised fund for charitable giving. This not only meets the family’s philanthropic goals but also generates significant tax savings. By aligning their unique RSU strategy with the broader wealth plan, risk can be reduced, portfolio efficiency increased, and flexibility preserved for future opportunities.
The Granite Harbor Approach
At Granite Harbor Advisors, we work with executives and business leaders across Texas and nationwide to address the complexity of equity compensation. Our team approach ensures that every RSU decision is informed by tax analysis, investment strategy, and risk management considerations. We coordinate efforts across your CPA, estate attorney, and other professionals to ensure you are not navigating these decisions in isolation.
Our clients can benefit from access to both public and private market investment opportunities, sophisticated estate and insurance planning, and an unwavering commitment to doing what is right. Managing RSUs effectively is not just about enhancing potential returns, it is about protecting the wealth you have worked so hard to build.
Final Thoughts
RSUs can be a powerful component of executive compensation, but they require active management to avoid costly mistakes. By aligning vesting events with a tax-aware sale strategy, addressing concentration risk, and integrating RSUs into your broader wealth plan, you can turn this form of compensation into a true wealth-building asset rather than a source of financial stress.
For executives facing substantial RSU grants, proactive planning is the difference between simply receiving stock and strategically building a legacy.
Any tax strategies mentioned above are hypothetical. This article is for informational purposes only and does not constitute investment advice. Tax strategies should be carefully considered with a tax professional before implementation.