Examples of Restricted Stock Units

What is a Restricted Stock Unit?

A Restricted Stock Unit (RSU) is a form of equity compensation typically granted by companies to employees as part of their overall compensation package. RSUs represent a promise by the employer to issue shares of company stock to the employee at a future date, subject to certain vesting conditions being met. RSUs are commonly used by companies, particularly in the technology and finance sectors, as a way to attract and retain talent, align employee interests with shareholder interests, and provide employees with a stake in the company’s performance and success over time....

How do Restricted Stock Units work?

Restricted Stock Units (RSUs) are a form of equity compensation commonly used by companies to reward employees....

How are Restricted Stock Units Taxed?

Restricted Stock Units (RSUs) are subject to taxation at two main points: upon vesting and upon sale of the shares received....

Advantages of Restricted Stock Units

1. Alignment of Interests: RSUs align the interests of employees with those of shareholders, as employees benefit directly from increases in the company’s stock price. This can motivate employees to work towards the company’s long-term success and performance....

Disadvantages of Restricted Stock Units

1. Tax Implications Upon Vesting: RSUs are subject to taxation upon vesting, as the fair market value of the shares is included in the employee’s income as ordinary income. This can result in a significant tax liability for employees, particularly if the stock price has appreciated since the grant date....

Examples of Restricted Stock Units

1. Technology Company RSUs: A technology company might grant RSUs to its employees as part of their compensation package. For example, a software engineer might receive a grant of 1,000 RSUs with a four-year vesting period and a one-year cliff. This means that the engineer would receive 25% of the RSUs (250 units) after the first year of employment, with the remaining units vesting evenly over the following three years....

Restricted Stock Unit vs. Stock Options

Basis Restricted Stock Units (RSUs) Stock Options Nature of Grant Grants of company stock Grants the right to purchase company stock at a predetermined price Purchase Price Typically no purchase price required Often has an exercise price that must be paid to acquire shares Tax Treatment Taxed as ordinary income when vested Tax treatment varies based on whether they are non-qualified or incentive stock options Tax Timing Taxed upon vesting Taxed upon exercise (for non-qualified options) or sale (for incentive options) Value Retention Have value even if the stock price does not increase Have value only if the stock price exceeds the exercise price Risk Employees bear no financial risk Employees risk losing the exercise price if the stock price does not exceed it Alignment of Interests Directly aligns employee interests with those of shareholders Indirectly aligns employee interests through potential stock price appreciation Flexibility Employees do not have the option to choose when to be taxed Employees have more control over the timing of taxation...

Restricted Stock Unit – FAQs

Can I sell my RSUs before they vest?...