Did you know that Shopify now provides compensation for their employees in the form of either cash, restricted stock units (RSUs), or stock options?
Everyone’s situation is different, but the first question you should ask is, do you believe in the future of the company you work for? Do you believe that the stock prices will be higher or lower in the future?
If you do, then perhaps you should choose to accept some compensation in the form of stock options or RSUs. A stock option is a form of compensation where the employee can purchase stocks in the company for a discounted or fixed price at some point in the future. A restricted stock unit, on the other hand, is when the company grants you company shares with certain conditions, like a vesting period before you receive the stocks.
So which option should you choose? Well, it depends on a few factors, but some of what you may consider are:
- What are your personal cash needs for day-to-day expenses?
- What is your risk tolerance and how successful are the company’s prospects in the future? (consider the company’s revenue, profitability, industry, etc.)
- What’s the liquidity for the RSUs or options? If the company isn’t public, you may not be able to sell the shares when you feel like it. What you want is to go for more liquid options.
- What is your tax situation? Depending on your total income for the year, options may be better to give you flexibility. Generally, you will not pay taxes to receive stock options, but you do pay taxes to exercise them.
What is Your Risk Tolerance?
Ultimately, there’s less risk associated with accepting cash in the short term. So it depends if you want to play it safe, or take a chance on profiting more than you will from taking cash. But, if you’ve seen my other videos you’ll know that sitting in cash is a risk in itself as inflation will erode away the value. Keep in mind, when you do sell your stock options or RSUs, you will also be taxed on your gains.
To summarize, it all comes down to your unique situation based on your goals, taxes, and personal preferences. Stock options/RSUs may be a better option if the company is performing well since you will have an opportunity to enjoy the upside potential of the stock skyrocketing. That doesn’t always happen though, ask our friends who used to work for BlackBerry or Nortel.
Want more financial advice? Follow me on Instagram to learn more!