restricted stock unit
A form of equity compensation where an employee receives shares of company stock after meeting vesting requirements, unlike options which require purchase.
Example
“His RSUs gave him 1,000 shares per year for four years — no purchase required, just staying at the company.”
Memory Tip
RSU = company just GIVES you shares after vesting. No purchase needed unlike options.
Why It Matters
Restricted stock units represent real compensation value that can significantly impact your net worth and tax situation. Understanding RSUs helps you evaluate job offers accurately, plan for tax obligations on vesting dates, and make informed decisions about diversifying company stock in your portfolio.
Common Misconception
Many people assume RSUs are the same as owning stock immediately, but you do not actually own the shares until they vest. Additionally, RSUs trigger taxable income on the vesting date based on the stock price at that time, even if you do not sell the shares, which surprises many employees.
In Practice
Suppose you receive 400 RSUs at a company worth $50 per share with a four-year vesting schedule. After one year, 100 units vest and you owe income tax on $5,000 of compensation. If you hold those 100 shares and they rise to $75 per share, you then also owe capital gains tax on the $2,500 increase when you eventually sell.
Etymology
RESTRICTED (subject to conditions) STOCK (shares) UNIT (individual grant). Stock RESTRICTED by conditions until VESTED.
Common Misspellings
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