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Single-Trigger vs Double-Trigger RSUs

  • Written Written by Shubhika Sundriyal 07 March 2024 | 4 min read
  • Editor's Note :

    Thinking about adding RSUs to your company's mix or gearing up to grab some as part of your equity compensation plan? This blog has your back, clearing any confusion on the Single-Trigger vs. Double-Trigger RSUs dilemma.

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You may be familiar with Amazon's practice of granting Restricted Stock Units (RSUs) to employees, featuring a four-year vesting period. The vesting occurs in a 5-15-40-40 schedule, where 5% vests after the first year, 15% in the second year, and 40% each in the last two years.

Additionally, renowned companies such as Uber, Apple, and Microsoft also extend RSU benefits to their employees.

Parallel to this trend, a skilled employee is no longer looking for just a salary hike. They’re looking for something more substantial, and in this pursuit, equity compensation in the form of Restricted Stock Units (RSUs) is taking center stage.

Within RSUs, the terms "single trigger" and "double-trigger" play crucial roles in their vesting.

To understand double trigger vs. single trigger better, let’s start with the basics.

What Are RSUs & How Do They Work?

how rsus work

Restricted Stock Units (RSUs) are a form of equity compensation granted by companies to employees. RSUs represent a promise to deliver company shares at a future date, typically tied to a vesting schedule. During the vesting period, employees gain ownership rights, and once vested, they receive the shares.

Vesting often occurs over several years to incentivize employee retention. The delivery of shares may happen in stock form or as a cash equivalent. Also, understanding trigger mechanisms in RSUs is crucial, as they can be linked to specific events like achieving performance targets or the company's financial milestones. This ensures that RSUs align with corporate goals and encourage employee commitment.

What Are Single-Trigger RSUs?

Single-trigger RSUs represent a form of equity compensation granted to employees. These units vest and convert into actual shares based on a single triggering event, typically a time-based schedule.

Also, other common triggering events include acquisitions or mergers, where the acquiring company assumes the RSUs. When such an event occurs, employees see their RSUs automatically vest, leading to the delivery of shares. This streamlined process simplifies the vesting mechanism compared to double-trigger RSUs, which may require multiple conditions for vesting.

What Are Double-Trigger RSUs?

Double-trigger RSUs are a type of equity compensation that involves two distinct triggering events for the vesting and delivery of shares.

Initially, a time or performance-based condition linked to the company's financial or operational objectives must be satisfied. Then, a change in control or termination event, such as a merger or involuntary termination without cause, must take place.

The dual requirement ensures that RSUs vest and convert into tangible shares only when both triggers occur. This structure aligns employee incentives with company performance and safeguards against unwarranted losses during organizational changes.

Now, let’s move on to understanding double-trigger vs. single-trigger RSUs with a straightforward table.

Comparison: Single-Trigger vs. Double-Trigger RSUs

Feature
Single-Trigger RSUs
Double-Trigger RSUs
Vesting Trigger
Triggered by a single event
Requires two triggering events
Risk Mitigation
Lower protection for employees in case of termination
Higher protection with additional triggers, offering more security
Common Triggers
Acquisition or change of control
Acquisition coupled with employee termination or resignation based on valid grounds
Impact on IPO
May lead to full vesting if the IPO occurs
Generally not impacted by IPO; requires acquisition or termination
Company Perspective
Simpler administration and less restrictive for the company
More complex, but offers additional protection for employees

Considerations for Employees

Single and double-trigger RSUs can significantly influence employees' experiences.

Single trigger RSUs vest upon a specific event, often a change in control, potentially accelerating financial gains. On the other hand, double-trigger RSUs require both a change in control and termination, offering more stability but delayed benefits.

These mechanisms affect job decisions, as employees may weigh the potential windfall against career growth. Thus, loyalty may depend on RSU structures, impacting retention. Also, financial outcomes are directly tied to these triggers, influencing the overall employee experience.

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Considerations for Employers

Employers contemplating stock-based incentives like RSUs must navigate the different aspects of single and double-trigger vesting. Single triggers activate RSU vesting upon a specific event, often a change in control, while double triggers require both a change in control and termination of employment. Single triggers offer simplicity but may lead to hasty exits. Double triggers provide a balance, aligning employee and company interests.

Employers must understand that strategically employing RSUs enhances talent retention and productivity with the promise of shared success. However, challenges arise in determining triggers that suit organizational goals while ensuring fair treatment. Balancing these considerations optimizes RSU's effectiveness, cultivating a motivated and stable workforce.

Wrapping Up

Single-trigger RSUs trigger taxes upon vesting, requiring recipients to report income based on the stock's market value. On the other hand, double-trigger RSUs trigger taxes upon both vesting and an additional event, often a company acquisition. This may result in favorable capital gains treatment.

There you go! That was all about double trigger vs. single trigger. It's essential to consult a tax professional for personalized guidance tailored to individual circumstances. Professional advice ensures optimal tax strategies, minimizing liabilities and maximizing financial gains. So stay informed and plan wisely for a secure financial future!

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