March 1, 2022
An equity grant helps in effectively managing remote teams. A top-shelf equity system that uses double-trigger restricted stock units (RSUs) can provide remote teams with a powerful alignment tool that effectively communicates, “We’re all in this together!”
A good equity plan brings in-office and/or remote teams of private companies into alignment and allows office and remote workers to trust each other more. It helps optimize for the greater good instead of getting distracted by time-wasting downward spirals like dealing with cultural differences and office politics that make work seem like a chore rather than an exciting investment.
At the beginning of 2020, the biggest remote work experiment ever conducted suddenly and unexpectedly began. Video calls for leading remote teams have become a norm. Now in 2022, regular video conferencing, remote work, and remote team management are no longer just a startup thing.
Some remote workers have adjusted well to video conferencing (instead of in-person meetings), are able to balance work with fun, and enjoy the autonomy of remote work with the use of project management tools. On the other hand, others miss the structure and schedules of physical offices. Some people are simply more motivated by the physical presence of their team.
I have worked remotely for years and i was also able to manage remote employees. My teams were scattered across different cultures and time zones. I found that strong leadership is emotional, and it is not easily expressed over phone calls, instant messaging, or virtual meetings.
When we work remotely instead of having a face to face interaction, leadership is put to the test as the casual lunch conversations and water cooler talks are not there for workers who do remote work, most especially new employees, to express ideas or ask questions.
The common denominator of a shared office and synced time disappears when you manage remote teams. With a distributed team, there may be misunderstandings about what others are doing, especially when there are no ground rules established.
As they’re not in a physical workspace, those part of a remote team may wonder where the company is going. This is especially if there’s typically no daily check-ins, direct reports, or a virtual “water cooler.” This definitely causes members of distributed teams or those in a remote workplace to question if they’re using the right tools or methods, and how important they really are to the company's mission moving forward.
Using modern equity options, such as double-trigger Restricted Stock Units (RSUs), as rewards gives private companies the ability to directly communicate to remote employees working when there are high-value tasks or projects to complete.
It is a great way to encourage team members in different time zones and working remotely to be on the same page with the company. For private companies, double-trigger RSUs as equity grants are especially useful for managing remote employees, and rewarding the key members of your remote team through tough periods (like sales or development sprints) with additional equity bonuses.
Equity grants are a motivating communication tool to help keep a remote team on track, particularly during intense periods of company growth. With the right equity plan, managing remote employees is made easy.
“A remote team can focus on how to best support their company while knowing that they will be rewarded fairly for their efforts through double-trigger RSUs.”
At Upstock, we help private companies get rid of common equity grant mistakes and headaches. We make granting employee equity through the use of RSUs with double trigger vesting acceleration much easier, less expensive, and more accessible to manage and issue around the world.
We also built in a motivating interface that shows everyone in private companies - from CEOs to contractors who are part of remote teams - how much their equity percentages are growing over time along with the current estimated dollar value of their equity (based off of the company's valuation).
This directly allows everyone to see and feel that their time matters.
Instead of double-trigger RSUs as they’re a fairly recent innovation, private companies predominantly used stock options, and in lesser cases, single-trigger restricted stocks. They were granted to key employees and service providers or contractors. Even when single-trigger RSUs became a popular employee equity vehicle for public companies, stock options remained as the norm for private, pre-IPO companies.
As there’s a lack of liquidity (or marketability) in the shares of private companies, private companies opted for stock options as option holders are given the ability to choose the timing of the tax liability on the equity. This is by deciding when the vested options are exercised.
Option holders can, therefore, plan for settlement of withholding taxes that are due on the exercise date. Most wait until there’s a company liquidity event like an acquisition or initial public offering (IPO) before exercising options.
In contrast, a single-trigger RSU holder is subjected to FICA taxes automatically when the RSUs with a single-trigger vesting schedule are exercised. The holder is also subject to ordinary income tax rates when the company shares are issued on the vesting date.
The issuance of single-trigger RSUs generally occurs at the vesting date or shortly after the single-trigger RSUs vest. This presents a problem as a single-trigger RSU holder may not be able to pay taxes for the equity grants.
As there is no open market on which shares can be sold, it can be challenging for a private company to meet tax withholding obligations for the vested RSUs. Private companies typically don’t have enough cash reserves for withholding company shares for tax purposes and paying the cash equivalent onto the US tax authority.
Not to mention the taxes that may be due on the single-trigger RSU vesting date can easily dwarf a worker’s paycheck. This means payroll withholding can be infeasible.
The double-trigger acceleration for restricted stock units has emerged to solve most of the problems of stock options and single-trigger RSUs for private company employees, including remote teams. Double-trigger RSUs (unlike stock options) can be issued globally. They can be awarded to an international team working in a remote setting.
More importantly, double-trigger or pre-IPO restricted stock units delay share issuance on the occurrence of two landmark events. With it, liability of federal income tax is also delayed until there’s liquidity in the company shares awarded through double-trigger RSUs.
The equity structure of pre-IPO grants layers a vesting condition of a company liquidity event on top of a service-based vesting requirement that often applies to single-trigger RSUs and most equity awards.
Double-trigger RSUs can have various restrictions, perfect for private companies and employees working remotely. They are typically subject to a vesting schedule, as well as a liquidity event. The vesting schedule is a requisite service period, for instance, a four-year arrangement which issues a particular number of shares monthly, quarterly or annually throughout the service period.
Note: For remote employees and other team members who resign from the company or are terminated for a grievous offense before the vesting date, they will forfeit the rest of the share allocation.
Aside from the service period that employees in an office or remote environment are responsible for, an additional condition must be fulfilled, often a company liquidity event.
There are also private companies that select the additional requirement to be the successful completion of a particular work assignment e.g. developing new service offerings or writing a program, for the equity grants to fully vest and for a remote employee to receive shares.
The RSU agreement between remote employees and the private company will dictate whether an employee receives actual shares of stock or a cash equivalent.
There are many advantages of issuing double-trigger RSUs to remote teams or even the in-office employees of your private company. Here are some of them:
Unlike stock options and restricted stock awards (RSAs), employees (and remote team members) don’t have to buy the equity. Company shares are granted based on the vesting requirements.
The equity only incurs tax liability when the double-trigger RSUs fully vest. Taxation is also based on ordinary income rates upon vesting. If the stocks appreciate over time, gains from the grant price will only be taxed when the double-trigger RSUs are exercised.
A remote team member awarded double-trigger RSU grants obtains equity in the company. This conveys the company’s values and aligns the interests of shareholders and the remote team, which are key components to company growth and success.
Unlike stock options, double-trigger RSUs don’t immediately impact the capitalization table. Remote team members are not granted shareholder rights until the shares fully vest.
For a remote team member, equity grants through RSUs with double-trigger vesting have the potential to realize significant appreciation. Unlike other forms of employee equity, double trigger RSUs won’t lose value unless the underlying stock is worth $0.
Double-trigger RSUs can be issued not only in a single country but in multiple jurisdictions worldwide. This is especially beneficial for private companies operating across the globe and those outsourcing to highly skilled professionals from foreign countries.
The drawbacks of granting double-trigger restricted stock unit to remote teams and in-office employees are:
A remote team member leaving the company or getting terminated for a grievous offense before the double-trigger RSUs vest results in the cancellation or forfeiture of the non-vested shares.
Remote team members are not granted voting rights upon the granting of double-trigger RSUs.
These drawbacks are considered advantages to private companies.
We are proud to have made a system that's simple and straightforward for founders of private companies to set up an equity plan with double-trigger RSUs, create their pools, and start issuing equity to office and remote workers. The onboarding process for all employees (including remote workers) is also easy on the platform!
In-office and remote workers entered into the Upstock system receive an email to log into their Upstock account. They can then review and e-sign their legal documents to start accepting equity and immediately see the value of that equity on their dashboard.
Remote workers will also be able to see what their equity might be worth if the company grows 10 or 100 times in value.
More for less. Upstock’s system has a much lesser cost compared to standard stock option plans that an attorney puts together for your remote workforce in different time zones. .
This is due to technological modernization and simplification. No longer are all parties required to get the help of expensive professionals. Yes, software is eating everything - even for enhancing personal relationships and managing a remote worker!
Private companies can easily sign up, enter a company valuation, create an equity pool, and manage their entire worker equity plan in as little as 30 minutes.
Since we've hired top attorneys and global financial firms to draft and review all our legal paperwork, you don't need to hire a lawyer unless you want to. Without Upstock, companies lose time, money, and miss the opportunity to let each key employee truly feel like an important and valued part of the company.
Get started with Upstock to experience the joy of pain-free remote equity management and get the chance to find true alignment between a company and its workforce.
DISCLOSURE: This article is written on behalf of Upstock and for informational purposes ONLY. As it relays general information only, Upstock is not rendering business, accounting, investment, tax, legal or any other professional advice. This publication should not be a substitute for professional advice nor be used as the basis for decisions or actions, which may affect the business and its interests.