Nvidia Benefits Page

Compensation Basics for Nvidia Employees

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

Restricted Stock Units

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

• Initial NSU grant

• Annual stock refresher

• Out-of-cycle bonus

Initial RSU Grants

Initial RSU grants are generally determined as part of the hiring process. NVIDIA has used several vesting schedules over time, and employees should refer to their individual grant documents for the terms applicable to their awards. NVIDIA’s current standard employee NSU grants generally vest over four years on a front-loaded 40%/30%/20%/10% schedule, with vesting occurring quarterly.

For example, suppose a new NVIDIA employee receives an on-hire RSU award with a target value of $250,000. If the share price used to determine the award were $200, the employee would receive 1,250 RSUs. Under a 40%/30%/20%/10% vesting schedule, 500 shares would vest during the first year, in four quarterly installments of 125 shares each. During the second year, 375 shares would vest, or approximately 94 shares per quarter; during the third year, 250 shares would vest, or approximately 63 shares per quarter; and during the fourth year, the remaining 125 shares would vest, or approximately 31 shares per quarter. Actual quarterly share amounts may vary slightly because of rounding.

NVIDIA’s current standard employee NSU grants generally vest over four years on a front-loaded 40%/30%/20%/10% schedule, with vesting occurring quarterly.

While vested amounts are front-loaded, stock-price acceleration can smooth the value received. For example, here’s how the dollar value of the Nvidia RSU grant described above would have played out:

Stock Refreshers

Annual restricted stock unit refreshers are typically issued starting an employee’s second calendar year for high performance. The units vest quarterly over 4 years.

Performance Stock Units

Nvidia grants Performance Stock Units (PSUs), that vest based on performance metrics, not time with the company (as is the case with RSUs). These goals include company financial performance, stock performance, or strategic objectives, and usually 1 to 3 years. Depending on how well the objectives are met, 0-200% of target shares are awarded.

Tax Withholding on RSUs

When your RSUs and PSUs vest, Nvidia keeps some of the vested shares and uses them to pay your payroll taxes (Social Security and Medicare) and to withhold federal and state income tax. Federal income tax is withheld at a flat 22% on up to $1 million of supplemental wages in a year, and at 37% above that. California employees also typically have 10.23% withheld for state income tax, plus 1.3% for State Disability Insurance. For many Nvidia employees in the 32%, 35%, or 37% brackets, 22% falls short, and the difference comes due when you file your return.

A shortfall can also trigger an IRS underpayment penalty, but that's avoidable. You won't owe a penalty if your withholding and estimated payments cover at least 90% of this year's tax, or 100% of last year's (110% if your prior-year AGI was over $150,000). You can close the gap by making quarterly estimated payments, or by raising your paycheck withholding through a new W-4. Withholding counts as if it were paid evenly through the year, even when you increase it late in the year.

If your RSUs have accumulated into a large NVDA position, the next question is how to reduce it without an avoidable tax bill. Our guide to Nvidia RSUs covers which shares cost the least to sell, what Nvidia's trading policy allows, and how to put it on a schedule.

Employee Stock Purchase Plan

Employee stock purchase plans offer an opportunity to purchase company shares with after-tax dollars at a discount. At Nvidia, that discount is 15% off the lower of the offering price (the closing price on the first trading day after the month you enroll) or the closing price on the last trading day of that purchase period. The employee stock purchase plan remains in effect for 2 years, and is split into 4 purchasing periods. Best of all, an employee’s offering price remains the same for the entire 2 years!

*For example, a new employee starting work in December 2021 and immediately opting into the plan would have received an offering price of $30.06/share (the closing price on January 3, 2022.). At the end of the first offering period, the stock price was ~$14.50, so the employee would have received his shares at a 15% discount to $14.50, or $12.33/share.

While the employee stock purchase plan does increase single-stock concentration risk in your overall portfolio, this risk can be managed allowing you to reap the discount (i.e. free money) benefit. With the right plan in place, this benefit is generally worth evaluating with an advisor.

We cover how to manage that concentration risk in our guide to Nvidia RSUs.

*Hypothetical example for illustration only, based on Nvidia's actual historical stock prices during that period; past price movements do not predict future results.