RSUs

Restricted stock units (RSUs) are a form of equity compensation granted by employers to employees and sometimes contractors. An RSU is a promise to issue shares (or a cash equivalent) to the recipient once certain vesting conditions are satisfied. Until vesting, the units typically have no voting rights or ownership, and they may be subject to transfer restrictions.

Vesting and settlement usually occur over a defined schedule, often tied to time served or to performance milestones. Common structures include a cliff vesting period (for example, one year) followed by gradual vesting, or staged vesting over multiple years. When RSUs vest, the company delivers the shares (or cash value) to the recipient. Tax treatment and any withholdings depend on jurisdiction; in many places, RSUs are taxed as ordinary income at vesting based on the shares’ fair market value, with subsequent capital gains or losses incurred upon sale.

RSUs differ from stock options in that there is no strike price to pay and no upside until vesting. This makes RSUs less risky for employees but can offer less upside compared with options if the stock price rises significantly. For employers, RSUs are a common retention tool and a way to align employee interests with company performance. From an accounting perspective, RSUs are typically recognized as compensation expense over the vesting period and can cause dilution when settled into shares. Accelerated vesting may occur on events such as a change in control, subject to plan rules.