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Summary
Restricted Stock Units (RSUs) are equity compensation that vest over time, typically on a 4-year schedule. The RSU projection calculator models your total equity income over 5-10 years, accounting for initial grants, annual refresher grants, different vesting schedules, stock price scenarios, and UK tax treatment on vesting.
How it works
Vesting schedules
RSUs vest (become actual shares you own) according to a schedule set by your employer. Common patterns:
| Schedule | Year 1 | Year 2 | Year 3 | Year 4 |
|---|---|---|---|---|
| Standard (equal) | 25% | 25% | 25% | 25% |
| Back-weighted (Amazon-style) | 5% | 15% | 40% | 40% |
| Front-weighted | 33% | 33% | 34% | 0% |
| Cliff + equal | 0% (cliff) | 33% | 33% | 34% |
Refresher grants
Many tech companies award annual refresher grants to maintain equity compensation as initial grants vest. Without refreshers, total compensation drops significantly after Year 4 when the initial grant fully vests.
Stock price scenarios
The projection models multiple stock price scenarios:
- Bull case — stock grows at a specified annual rate
- Base case — stock price remains flat
- Bear case — stock declines at a specified annual rate
UK tax treatment
RSUs are taxed as employment income at the point of vesting:
- On vesting: the market value of the shares is added to your salary for income tax (20-45%) and National Insurance (8%/2%) purposes
- Most employers operate sell-to-cover: enough shares are automatically sold to pay the tax, and you receive the remaining shares
- Any subsequent gain when you sell the shares is subject to Capital Gains Tax (18%/24%), with the base cost being the vesting price
The projection model
Year N total vesting = Sum of (grant amount x vesting % for year N) across all active grants
Each grant’s vesting is tracked independently. In Year 5, you might have:
- Year 1 of refresher grant 4
- Year 2 of refresher grant 3
- Year 3 of refresher grant 2
- Year 4 of refresher grant 1
- (Initial grant fully vested)
Worked example
Initial grant: £80,000 over 4 years (equal vesting), Annual refresher: £20,000, Stock flat
| Year | Initial vesting | Refresher vesting | Total equity |
|---|---|---|---|
| 1 | £20,000 | £0 | £20,000 |
| 2 | £20,000 | £5,000 (Yr1 of R1) | £25,000 |
| 3 | £20,000 | £5,000 + £5,000 | £30,000 |
| 4 | £20,000 | £5,000 + £5,000 + £5,000 | £35,000 |
| 5 | £0 | £5,000 + £5,000 + £5,000 + £5,000 | £20,000 |
Year 5 drops to the refresher “steady state” of £20,000/year. This cliff after Year 4 catches many people off guard.
Tax at 40% marginal rate on Year 4 vesting (£35,000): approximately £14,000 in tax, net vesting value approximately £21,000.
Inputs explained
- Initial grant value — the total RSU award value at grant date
- Vesting schedule — how the grant vests over time
- Refresher grant — annual additional RSU awards
- Stock growth rate — expected annual stock price change (for scenario modelling)
- Base salary — to calculate the combined marginal tax rate on vesting income
Outputs explained
- Year-by-year vesting schedule — total shares/value vesting each year
- Net after-tax value — vesting income minus income tax and NI
- Stock price scenario comparison — bull, base, and bear projections
- Steady state — the annual vesting level once the initial grant is fully vested
- Total compensation projection — base salary + bonus + equity combined
Assumptions & limitations
- Stock price is unpredictable. The projection uses constant growth rates for simplicity. In reality, stock prices are volatile and can drop significantly.
- Tax is calculated at the marginal rate. Large vesting events can push you into the 60% tax trap zone (£100,000-£125,140).
- Does not model Section 431 elections, HMRC Enterprise Management Incentives (EMI), or other share scheme types that have different tax treatment.
- Assumes sell-to-cover at vesting. If you hold shares beyond vesting, subsequent gains/losses are subject to CGT.
- Currency risk applies for US-listed companies paying in USD — the GBP value fluctuates with the exchange rate.