How to get results with double trigger vesting
Double trigger vesting allows workers and companies to time the taxation of stock grants to a liquidity event. This avoids a huge tax bill at a time when the worker does not have cash to pay a tax bill. This delayed trigger avoids many of the problems present with stock options. Facebook is known for pioneering this legal tech. It was the key mechanism that motivated workers and made a lot of them very rich.
So let’s dive a bit deeper into how this all works. Let’s go waaaayyy waaaaaayy back in internet time. Back to 2012. Imagine you’re running Facebook and you have to solve a huge problem. You need to offer equity that really motivates your workers to ensure that you can win the battle of social media dominance! So what did you do?
You decided to invent a twist on Restricted Stock Units (RSUs). Previously, workers at pre-IPO companies were not able to sell a portion of their RSUs to pay their income tax. This forced them to spend personal money to get their stock! To avoid this, Facebook put in a second vesting condition, also known as a ‘double trigger.’ This second vesting condition would only be met once a liquidity event occurred such as the company getting acquired, an Initial Public Offering (IPO), or a direct listing.
Including this additional trigger allows a company to keep a portion of the stock promised to a worker not technically vested. Once there is liquidity (cash) from the IPO, listing or acquisition, then the final vesting trigger gets pulled and then the company does what’s called a “sell to cover.” All or a portion of the worker’s stock is sold to pay the tax on the stock the worker has received. This way workers can relax, knowing that they will probably not have to pay out of pocket for tax or legal guidance in order to receive and deal with stock options.
So why am I telling you this?
Because it’s basic math:
Double Trigger Vesting
+ Upstock RSUs
= Very Happy Workers
These days most professionals we talk with who have received both options and RSUs say that they far and away prefer RSUs. They are simple to deal with and are easy to understand their value.
That’s why Upstock offers RSUs with double trigger vesting as well as fixed equity plans, all without the high cost of attorney’s fees.