Restricted Stock Unit (RSU)

A Restricted Stock Unit (RSU) is a stock units that can be taken possession of once specified restrictions lapse.

• Context:
  • It can (typically) be a Individual Equity Compensation.
  • It can range from being a Single-Trigger Restricted Stock Unit, to being ...
  • …
• Example(s):
  • a Facebook RSU.
  • a Lyft RSU.
  • …
• Counter-Example(s):
  • a Stock Option.
  • a Stock Appreciation Right.
  • a Phantom Stock.
• See: Right to Possess, Stock Option Expensing, Vesting, Earnings Per Share, Employee Stock Purchase Plan.

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References

2019

• https://linkedin.com/pulse/why-nerdwallet-made-switch-from-options-rsus-tim-chen/
  • QUOTE: ... RSUs differ from options in a few key ways. Where options require that employees pay an exercise price in exchange for receiving shares, an RSU is a right to receive shares, full stop. If, say, you are a new hire and granted 1,000 RSUs vesting over four years, at the end of those four years you’ll have 1,000 shares of NerdWallet stock in your account, not just the option to purchase 1,000 shares.

    Given our level of profitability, we’re able to offer the most employee-friendly RSUs in the form of single trigger RSUs. Most startups that move to RSUs offer double trigger RSUs instead, where your RSUs vest only with both a certain amount of time passing and an exit event, like an IPO or sale. They do this because they don’t have enough profit as private companies to offset the tax payments. As a result, those employees are unable to participate in other liquidity events, like secondary transactions, that may precede an exit. Because employee liquidity is a top priority, and because of our profitability, we’re going with single trigger RSUs instead, where vesting occurs with just one trigger: time. ...

2016

• (Wikipedia, 2016) ⇒ https://en.wikipedia.org/wiki/restricted_stock Retrieved:2016-9-11.
  • Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable (from the stock-issuing company to the person receiving the stock award) until certain conditions (restrictions) have been met. Upon satisfaction of those conditions, the stock is no longer restricted, and becomes transferable to the person holding the award. Restricted stock is often used as a form of employee compensation, in which case it typically becomes transferrable ("vests") upon the satisfaction of certain conditions, such as continued employment for a period of time or the achievement of particular product-development milestones, earnings per share goals or other financial targets. Restricted stock is a popular alternative to stock options, particularly for executives, due to favorable accounting rules and income tax treatment. Restricted stock units (RSUs) have more recently become popular among venture companies as a hybrid of stock options and restricted stock. RSUs involve a promise by the employer to grant restricted stock at a specified point in the future, with the general intention of delaying the recognition of income to the employee while maintaining the advantageous accounting treatment of restricted stock.

2015

• http://www.investopedia.com/terms/r/restricted-stock-unit.asp
  • QUOTE: What is a 'Restricted Stock Unit' A restricted stock unit is compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock immediately, but instead receives it according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the employer for a particular length of time. The restricted stock units (RSU) are assigned a fair market value when they vest. Upon vesting, they are considered income, and a portion of the shares are withheld to pay income taxes. The employee receives the remaining shares and can sell them at any time.

2014

• https://blog.wealthfront.com/stock-options-versus-rsu/
  • QUOTE: ... To accomplish his goal he created a capital structure that issued Convertible Preferred Stock to the Venture Capitalists and Common Stock (in the form of stock options) to employees. The Preferred Stock would ultimately convert into Common Stock if the company were to go public or get acquired, but would have unique rights that would make a Preferred share appear more valuable than a Common share. ... Microsoft then did a very savvy thing to win the Facebook deal. It understood from years of investing in small companies that public investors do not value appreciation earned from investments. They only care about earnings from recurring operations. ... RSUs (or Restriced Stock Units) are shares of Common Stock subject to vesting and, often, other restrictions. ... Employees should expect to receive fewer RSUs than stock options for the same job/company maturity because RSUs have value independent of how well the issuing company performs post grant. ... The final major difference between RSUs and stock options is the way they are taxed. ... In either case your RSUs are taxed at ordinary income rates, which can be as high as 48% (Federal + State) depending on the value of your RSUs and the state in which you live. As we explained in the aforementioned blog post, holding on to your RSUs is equivalent to making the decision to buy more of your company stock at the current price. In contrast, options are not taxed until they are exercised. ... Most people do not exercise their options until their employer has gone public. At that point it is possible to exercise and sell at least enough shares to cover the ordinary income tax owed on the appreciation of the options.

2012

• https://www.nceo.org/articles/stock-options-restricted-phantom-sars-espps
  • QUOTE: ... There are five basic kinds of individual equity compensation plans: stock options, restricted stock and restricted stock units, stock appreciation rights, phantom stock, and employee stock purchase plans. ...

    ... Restricted stock plans provide employees with the right to purchase shares at fair market value or a discount, or employees may receive shares at no cost. However, the shares employees acquire are not really theirs yet-they cannot take possession of them until specified restrictions lapse. Most commonly, the vesting restriction lapses if the employee continues to work for the company for a certain number of years, often three to five. Time-based restrictions may lapse all at once or gradually. Any restrictions could be imposed, however. The company could, for instance, restrict the shares until certain corporate, departmental, or individual performance goals are achieved. With restricted stock units (RSUs), employees do not actually receive shares until the restrictions lapse. In effect, RSUs are like phantom stock settled in shares instead of cash. ...

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