How Different Executive Compensation Giving Options Work

Stock options, RSAs and RSUs aren’t typically transferrable to a nonprofit, but after exercise or vesting the employee owns the actual shares of stock and can use them for charitable giving.

When donating executive compensation, it is usually best to wait at least a year after exercise or vesting so that the employee can receive a fair market value deduction for the gift and avoid capital gain on the donated shares.

See our quick reference guide on giving executive compensation below.

Stock Options

Stock options allow an employee to purchase company stock directly from the employer at a discounted price. That purchase of shares is called an exercise. Once options have vested, they can be exercised any time before their expiration date.

When an employee exercises stock options, they recognize ordinary income tax on the difference between the discounted option price and the value of the stock on the day of the exercise. That difference is called the spread.

If the employee sells the stock immediately, there is little to no capital gains tax to be recognized, because their basis is equal to or very close to the sale price. They will, however, still recognize ordinary income tax on the spread. A charitable gift of some of the sales proceeds could help to off-set that additional tax.

Restricted Stock Units (RSUs)

Restricted stock units (RSUs) allow an employee to receive a specific number of shares of company stock from the employer at a future date and sometimes after certain metrics have been met. At the time of vesting, the employee recognizes ordinary income tax on the stock's value.

If the employee sells the stock immediately upon vesting, there is little to no capital gains tax to be recognized because their basis is equal to or very close to the sale price. They will, however, still recognize ordinary income tax on the value of the stock they received. A charitable gift of some of the sales proceeds in the year of vesting could minimize that extra income tax.

Restricted Stock Awards (RSAs)

Restricted stock awards (RSAs) allow an employee to purchase shares of company stock directly from the employer on a specific date for fair market value, at a discount, or at no cost.

At the time of acquisition, the employee will recognize ordinary income tax on the difference between the purchase price and the fair market value (unless a Section 83(b) election was made). If the employee sells the stock immediately, a charitable gift of some of the sales proceeds could minimize that extra tax.