More Facebook riches all around! The company granted about $796 million in restricted stock units to employees less than a week ago, according to an amended IPO filing.
These are “employee refresher grants,” or new grants for employees. They don’t replace existing ones. These restricted stock units, or RSUs, could be worth anywhere from $707 million to $884 million based on Facebook’s expected $28 to 35 price range per share. Of course, if people hold on for longer and the stock pops by the time their lock-up period finishes, these shares could be worth a great deal more.
“On May 3, 2012, we granted an aggregate of 25,257,815 RSUs. We will determine the fair value of these grants during the second quarter. If the fair value of our Class A common stock was $31.50, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate grant date fair value would be approximately $796 million.”
Remember: RSUs or restricted stock units are not actual Facebook shares. They are contracts which promise actual shares upon a certain event (like an IPO!).
Facebook originally issued RSUs because the older SEC regulations said that companies with more than 500 shareholders had to report their financial performance like public companies do. Facebook was getting close to that critical limit, so the company started issuing RSUs instead. Under the recently passed JOBS Act, however, the landscape is totally different. This rule was changed to allow up to 2,000 shareholders excluding employees. So now companies can keep their numbers private for much, much longer.
RSUs have one other major benefit that sets them apart from options: employees don’t have to pay to exercise them. The downside is that they’re taxed as ordinary income (which could mean around a 45 percent tax rate with state taxes and Social Security contributions). Normal shares are taxed under the 15 percent capital gains rate if they’re held for longer than a year.
On a separate note, on the same day that Facebook awarded these units last week, the company said that many early shareholders including CEO Mark Zuckerberg, Accel Partners and more were selling up to $5.5 billion in stock during the IPO.