Understanding Restricted Stock Units (RSUs): A Guide for Employees and Employers

RSU stands for "Restricted Stock Unit". It is a type of equity compensation that is granted to employees, typically in the form of units of company stock. However, unlike traditional stock options, RSUs are not exercisable and do not give the holder the right to purchase additional shares of the company's stock. Instead, RSUs represent a promise by the company to deliver a certain number of shares of stock to the employee at a future date, usually after a vesting period has been satisfied.

RSUs are often used as a form of long-term incentive compensation for employees, as they can provide a potential reward for meeting certain performance goals or milestones. They can also be used to attract and retain top talent, as employees may be more likely to join or remain with a company if they know they will receive a portion of the company's stock over time.

One key difference between RSUs and traditional stock options is that RSUs do not have an exercise price, meaning that the employee does not have to pay anything to receive the shares. Instead, the company simply awards the RSUs to the employee, and the employee receives the shares at the end of the vesting period. This can make RSUs more attractive to employees than traditional stock options, as they do not require any upfront payment.

However, it's important to note that RSUs are still subject to taxes, just like traditional stock options. When an employee receives RSUs, they may be required to pay income taxes on the fair market value of the shares at the time they are awarded, even if they have not yet sold the shares. This can result in a significant tax bill for the employee, so it's important to carefully consider the tax implications of RSUs before accepting them as part of your compensation package.