Restricted stock units (RSUs) are a form of equity compensation offered by companies to their employees. RSUs represent a promise by the company to issue a certain number of shares of its stock to the employee at a future date, typically upon the satisfaction of certain conditions. These conditions may include the employee’s continued employment with the company for a certain period of time, achievement of performance goals, or other predetermined milestones.
Unlike traditional stock options, RSUs do not grant the employee the right to purchase company stock at a discounted price. Instead, RSUs are typically granted as a form of incentive or bonus, and the employee does not have to pay anything to receive them. However, the value of RSUs is tied to the company’s stock price, so if the stock price increases, the RSUs become more valuable.
One of the key features of RSUs is that they are subject to a vesting schedule, which means that the employee does not immediately receive the shares upon grant. Instead, the shares are typically released to the employee in increments over a period of time, often referred to as a vesting period. This is done to incentivize employees to stay with the company for a longer period of time and to align their interests with the company’s performance.
RSUs also have certain restrictions on their transferability, meaning that the employee cannot sell or transfer the shares until they have vested. This is to ensure that the employee remains committed to the company and its long-term success.
Upon vesting, RSUs are typically settled in company stock, although some companies may offer the option to receive cash instead. Once the shares are settled, the employee becomes a shareholder of the company and is entitled to all the rights and benefits of owning company stock, such as receiving dividends and voting rights.
In summary, restricted stock units are a type of equity compensation that companies offer to their employees as a form of incentive or bonus. They represent a promise to issue company stock to the employee at a future date, subject to certain conditions and restrictions. RSUs are a popular form of compensation in the tech industry and are often used to attract and retain top talent.
