Restricted stock grants are a popular executive compensation mechanism that tie the performance of a company with the compensation of the employee, according to Greg Daugherty of Porter Wright. Additionally, since the compensation is equal to the value of the stock, and not its appreciation in value, employees like them too.
The general rule for taxation of these stocks is “the value of the stock to the employee who receives a restricted stock grant is not taxed until the earlier of when the stock becomes either no longer subject to a substantial risk of forfeitures (i.e. vested), or when the stock becomes transferable,” explains Daugherty. However, the Internal Revenue Services recently issued final regulations to clarify just when a substantial risk of forfeiture occurs.
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