Restricted Stock Unit
AdvancedA restricted stock unit (RSU) is a promise by an employer to give an employee shares in the company, or their cash value, once certain conditions are met, usually continuing to work for the company for a set period.
RSUs are a common form of equity pay, especially at listed technology companies. Unlike stock options, RSUs do not require the employee to pay anything to receive the shares, so they have value as long as the share price is above zero.
RSUs are granted with a vesting schedule. For example, an employee might receive 1,000 RSUs vesting in equal parts over four years. When each portion vests, the employee receives the shares. If the share price is 50 at vesting, 250 shares are worth 12,500.
In many countries, the value of RSUs is taxed as employment income when they vest, even if the shares are not sold. Companies often withhold some shares to cover the tax.
For the company, RSUs are a form of share-based compensation, expensed over the vesting period based on the share price at grant. Some RSUs, called performance stock units, vest only if targets such as profit or share price goals are met.
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