Double-Trigger RSUs and the Question of the Seven-Year Term

For several years, industry lore in the executive compensation world has held that to avoid a 409A violation (and the ensuing parade of horribles), double-trigger RSUs must have a term of no more than seven years from the date the RSU is granted in which the IPO must occur. And out of that arose a somewhat fraught question as to whether a 10-year term (or indeed any term in excess of seven years) is permitted.

To answer this question, we explore the thinking behind the double-trigger RSU design and the legal underpinnings under the substantial risk of forfeiture rules of Section 409A, including:

• Rationale for the double-trigger RSU design;
• Features of double-trigger RSU design; and
• Liquidity events as a vesting condition

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Originally published in Corporate Taxation/Journal of Corporate Taxation (WG&L) Volume 49, Number 02, March/April 2022. Copyright 2022 Thomson Reuters/Tax & Accounting.