If you've recently had Restricted Stock Units (RSU) vest, you may have noticed that the number of shares appearing in your brokerage account doesn't always match the number of shares that vested. You may also be wondering why shares haven't appeared yet or whether they are available to sell.
Many of these questions stem from understanding what happens during the RSU release process.
RSU release is the point at which vested RSUs are converted into actual shares and delivered to the employee’s brokerage account.
Grant → Vest → Release
On the grant date, your company awards you RSUs, but you don’t own the shares yet. You simply have the right to receive the shares in the future if the vesting conditions are met.
Once vesting conditions are satisfied, the shares of company stock become yours, and the value of the shares as of the vesting date generally becomes fully taxable as compensation income.
The release date is when the company actually delivers vested shares to your brokerage account (often after withholding some shares for taxes). Those net shares remaining after withholding are now available for you to hold or to sell, barring any company trading restrictions or blackout periods that you would have been made aware of ahead of time.
The Confusion
A lot of executives who are newly receiving equity compensation are aware of the vesting date, but unaware of the release date, and therefor experience confusion when they believe they should own the shares, but the shares aren’t in their brokerage account.
Example:
- 1,000 RSUs vest
- Your company withholds 400 shares for taxes
- 600 shares are released into your brokerage account
- Mandatory withholding for payroll and income taxes
- Fractional share handling (the small amount of cash left over after paying taxes from shares sold)
- Prior elections or automatic transaction instructions (through a 10b5-1 plan, for example)
1,000 shares are vested, but only 600 shares were released.
Why Are Fewer Shares Released Than Vested?
In most cases, the difference is explained by:
- Mandatory withholding for payroll and income taxes
- Fractional share handling (the small amount of cash left over after paying taxes from shares sold)
- Prior elections or automatic transaction instructions (through a 10b5-1 plan, for example)
Tax withholding is by far the most common reason employees receive fewer shares than originally vested. However, factors such as payroll deductions, fractional share handling, settlement timing, and company-specific restrictions can occasionally affect the number of shares ultimately delivered to an employee's account.
1. Tax Withholding Plus Additional Payroll Deductions
This is the most common reason that the shares released are fewer than the shares vested. Because RSUs are taxed as ordinary income, it is typically customary for your employer to withhold taxes the same way they would from your regular paychecks.
It is very common for a portion of the vesting event to also be withheld and used for:
- Federal income tax
- State taxes and local income tax
- Social Security tax
- Medicare tax
- Other payroll-related obligations (e.g. alimony or a divorce decree)
Employees often view all of this as “tax withholding,” but it can make the reduction appear larger than expected depending on state and local rules and regulations.
2. Fractional Share Treatment
In some cases, fractional share treatment can cause minor discrepancies between vested shares and released shares based on rounding errors. Though generally too small to affect any planning decisions, here is an example of how fractional share treatment can affect the equation:
Let’s say 1,000 RSUs vest and your company withholds 37% for taxes.
- 1,000 x 37% = vested 370 shares withheld
- 1,000 – 370 = 630 shares released
This creates no issues. Everything withheld and released is measured in whole shares.
Now let’s say 863 RSUs vest while your company withholds 37% for taxes.
- 863 x 37% = 319.31 shares
Your company can’t withhold 0.31 of a share in most stock plan systems, so they have to decide how to handle that fraction. Sometimes they’ll round up to 320 shares, sometimes they’ll round down to 319 shares.
That difference likely isn’t noticeable. Imagine your shares are worth $150. The value of 0.31 shares is $46.50. Compared to tax withholding, this is a very minor consideration.
3. Company-Imposed Holding Requirements
When we talk about company-imposed restrictions or withholdings, we’re referring to situations where the company's stock plan rules reduce, delay, or otherwise limit what an employee receives after vesting for reasons other than taxes.
- Executive Stock Ownership Requirements: Many public companies require senior executives to maintain ownership of company stock equal to a multiple of their salary. If an executive hasn't met the requirement yet, the company may require them to retain some or all vested shares. While this doesn’t typically reduce the number of shares released, it can affect what the employees are able to do with those shares.
- Sell Restrictions During Blackout Periods: Many employees who receive shares after vesting are prohibited from immediately selling them because of earnings announcements, material non-public information, or internal trading policies. The shares can vest and release, but are not available for sale.
- Double-Trigger RSUs (Private Companies): With double trigger RSUs, the vesting doesn't actually occur until two conditions are met, time-based and event-based. So, if the time-based requirement has been met but the company has not been acquired/gone public, the RSUs have vested but have not delivered. T
In most cases, the difference between vested shares and released shares is the result of tax withholding. However, company trading restrictions, executive ownership requirements, settlement timing, and certain stock plan provisions can occasionally affect the timing or availability of shares following vesting.
4. Delayed Settlement Procedures
Some public-company employees can expect a short delay between when shares are scheduled to release and when they appear in their account. This can happen later that same day, 1-3 business days later, or sometimes longer depending on holidays or payroll processing cycles. In most of these cases, there is just a slightly longer process which will deliver your RSUs to your brokerage account.
5. Prior Transactions or Elections
A less common cause of confusion refers to prior transactions or elections, or instances when a choice has been made that affects what happens at vesting or release. These choices can be predetermined or automatic.
The most common example of this is a company’s election to sell a certain percentage of vested shares to cover taxes. Some plans give employees choices regarding tax withholding of their RSUs, and an employee can usually sell shares to cover taxes automatically or to pay taxes in cash. Any of these decisions can affect the number of shares released.
Sometimes executives elect to establish automatic trading plans for their RSUs, such as a 10b5-1 plan, wherein the employee can, through a written and pre-arranged agreement with their corporate insider and a broker, buy or sell company stock at a future date according to specific, predetermined rules. In this scenario, the plan uses objective criteria, such as specific dates, share counts, target prices, or formulas to execute trades automatically.
So, Can I Sell My Shares Immediately After an RSU Release?
In many cases, yes. Once RSU shares have been released to your brokerage account, they can, pending restrictions, be held or sold like any other shares you own.
However, company-specific restrictions may affect when a sale can occur. Blackout periods, trading window restrictions, executive ownership requirements, insider trading policies, active Rule 10b5-1 trading plans, or other stock plan provisions may temporarily limit your ability to sell. If you have an active Rule 10b5-1 plan in place, sales of company stock generally must occur according to the terms of that plan until it is modified or terminated in accordance with applicable requirements.
If you are unsure whether any restrictions apply, review your company's stock plan documents or contact your stock plan administrator before placing a trade.
Takeaway
An RSU release occurs when vested RSUs are converted into actual shares and delivered to your brokerage account.
In most situations, the difference between vested shares and released shares is the result of tax withholding. However, payroll deductions, settlement timing, stock plan provisions, and prior elections can also affect what ultimately appears in your account.
Understanding how RSUs move from grant to vesting to release can help reduce confusion and make it easier to evaluate the decisions that follow.
Read Next: When and How to Sell Restricted Stock Units
