Understanding your benefits as a NuScale employee is crucial for making the most of your financial compensations.
One of the standout benefits offered by NuScale is the opportunity to receive Restricted Stock Units (RSUs) and Non-Qualified Stock Options (NQSOs), both of which offer you opportunities to own stock in the company. But what exactly are RSUs and NQSOs, how can you own and sell these options and how could they affect your taxes?
Today, we’re exploring what you need to know about these employee benefits, including key terms to know, the basics of vesting schedules and potential tax implications.
What You Should Know About RSUs at NuScale
RSUs (Restricted Stock Units) are a phenomenal benefit available to NuScale employees that allows you to take advantage of NuScale’s long-term growth.
“RSUs are a type of equity compensation that grants employees a specific number of company shares subject to a vesting schedule and potentially other stipulations. The vesting schedule dictates when ownership rights are activated, typically upon completing a certain number of service years.”
RSUs can be great for both the company and the employees – the better the company does, the more financial benefit employees see, and the more likely they are to stay motivated in their jobs.
But before we dive in, let’s take a look at some of the key terms you need to know to fully understand RSUs:
|RSU Grant||This is when NuScale initially awards you the RSUs in your compensation package.|
|RSU Vesting||Vesting occurs when you receive the RSU and have the option of selling. Essentially, it’s when the stock becomes yours.|
NuScale’s RSUs are on a 3-year vesting schedule, meaning that one-third of the RSUs will vest each year. The table below illustrates an example of an employee receiving 3,000 RSUs annually for 5 years. Notice that one-third (in this case 1,000 RSUs) vest in each subsequent year after the grant. Once the stock is vested, you become the owner.
Be wary of the tax implications of vesting RSUs and the risks associated with holding too much of one individual stock. Whether you choose to keep or sell the RSU, you will pay ordinary income tax. Once they vest, you gain control over the option to keep NuScale stock (SMR) or to sell and diversify into other holdings.
After your RSUs are vested, consider diversifying your portfolio and limiting your NuScale stock (SMR) to less than 5% of your overall portfolio. If you’re unsure how best to manage your RSU, it may be best to meet with a qualified financial advisor who can offer guidance per your specific needs and goals.
What You Should Know About NQSOs at NuScale
If you joined NuScale prior to when the company went public in March 2022, you may have been issued NQSO (Non-Qualified Stock Options). These “give employees the right, within a designated timeframe, to buy a set number of shares of their company’s shares at a preset price.”
There are also some key terms you’ll need to know for understanding your NuScale NQSOs:
|NQSO Granting||This is when the NQSO is offered to you as part of your compensation.|
|NQSO Vesting||The vesting period is the time you must wait before you can purchase the stock. When your NQSO is vested, this allows you to “exercise” – or purchase – the stock.|
|NQSO Exercise||Exercising occurs when you choose to purchase the NQSO, you’ll pay the “Strike Price” for each share.|
|Strike Price||This is essentially your discounted price for the share(s).|
|Market Price||The price of NuScale stock (SMR) on any given day.|
The tax implications of the NQSO are vastly different from the RSUs. For instance, you must wait for the “vest” in order to “exercise” the NQSO. For NQSO, you will be taxed when you “exercise.” From this point, you can decide what to do with the shares. We often recommend diversifying the shares to reduce overall portfolio risk and volatility.
Note that your proceeds lie in the difference between the market price and the strike price. For example, if the market price is $7.00 and the strike price is $2.00 your proceeds will be $5.00. This is the amount that would be subject to taxes.
Through Fidelity, you have the option to complete a cashless exercise with your NQSO. This is a great option if you don’t have the cash to purchase the shares or if you’re planning on selling and diversifying the shares anyway.
When exercising these options it’s important to note that you will have a tax withholding option and the proceeds will be subject to Social Security and Medicare taxes.
3 Tips for Managing Equity Compensation
Before you make any major decisions regarding your RSU and NSQO, there are a few other considerations to keep in mind:
1. Beware of Wash Sales: Wash sales happen when you sell a security (NuScale’s SMR, for example) for a loss and then repurchase it within 30 days. If you complete a wash sale there can be adverse tax consequences, so be mindful of this when making sales and exercising your options.
Note that RSU vesting does count as a purchase in regards to wash sales – be cautious on the timing of RSU vesting and sales of NuScale (SMR).
2. Know About Blackout Periods: Blackout periods are periods of time when trading restrictions apply. Your HR department should notify you when these periods occur; however, it’s best practice to proactively track these timelines.
3. Pay Attention to Risk Management: Consider keeping your NuScale stock to less than 5% of your overall investment portfolio. This helps shield your overall financial situation from the fluctuations of a single stock.
Understanding and optimizing your NuScale equity compensation can significantly impact your financial future. With a well-rounded knowledge of RSUs and NSQOs, you can feel confident in your financial portfolio.
Want Help Understanding Your NuScale Equity Compensation?
We offer NuScale employees a complimentary consultation to see how we could help you make the most of your benefits. Contact us today to learn more!