Compensation for Meta Employees

Meta compensates its employees through salary, RSUs and cash bonuses. In the absence of tax planning, all three are taxed at ordinary income tax rates.

Restricted Stock Units

Meta provides its employees with stock awards by way of restricted stock units (RSUs), which come in three forms:

• Initial RSU grant

• Stock refreshers

• Out-of-cycle bonus

Initial RSU Grants

Initial RSU grants are negotiated during the hiring process. At Meta, the most common vesting schedule calls for quarterly vesting over 4 years with no 1 year cliff. In other words, 16 equal amounts of RSUs vesting every quarter - the employee receiving one share of stock for each vested RSU.

Let’s imagine an initial RSU package of $400,000 set at the beginning of 2020 when one share of Meta (then Facebook) was priced at $202. The grant would amount to $400,000 / $202 = 1,981 RSUs, which would vest every quarter over 4 years at a rate of 124 RSUs per quarter (1,981 / (4 *4):

Ideally, Meta’s stock price will rise over the vesting period, so that the dollar value of the shares received rise over time (even though the number of shares has not changed). Here’s how a $400,000 RSU grant made at the beginning of 2020 would have vested in dollar terms over the 4 year period from 2020 to 2023.

Stock Refreshers

Employees who begin working for Meta before April 1st will be eligible for stock refreshers in their first year. Otherwise, stock refreshers begin in the second calendar year of employment. Stock refreshers are determined by performance on a scale of 5 to 9 and are paid out once a year. Vesting follows the same schedule as most initial RSU grants: 8 vesting dates spaced 6 months apart over a total of 4 years.

Out-Of-Cycle Bonuses

Out-of-cycle bonuses are less predictable and are usually issued to exceptionally high-value employees who Meta considers targets for poaching by competitors.

Taxation of RSUs

RSUs are taxed as ordinary income upon vesting and as a capital gain or loss upon the sale of the shares received. To learn about RSU tax mistakes and how to avoid them, watch our video on RSU taxation.

Tax Withholding on RSUs

When RSUs vest, Meta sells a portion of the resulting shares to cover payroll taxes (social security, medicare, etc.) and withhold income taxes for the IRS and the employee’s state of residence. For those making less than $1 million dollars in annual supplemental wages, the withholding rate is typically 22% of the market value of the shares. However, this is often not sufficient to cover the employee’s tax liability to the IRS. It’s often the case that the employee must pay penalties in addition to the taxes not covered by withholding.

Meta Mega Backdoor Roth

The Meta 401(k) offers a Mega Backdoor Roth, which allows after-tax contributions to be converted to Roth. This conversion forever more shields investment earnings from income tax. In other words, qualified distributions from the account become entirely tax-free (both contributions and investment earnings).

Unlike the Roth IRA, which is capped at $7,000 in annual contributions as of 2024 ($8,000 for those 50 years and over), the Mega Backdoor Roth allows for much more substantial contributions in the tens of thousands of dollars — at Meta up to $34,500.