Restricted Stock Units (RSUs) are a form of equity compensation that companies issue to employees. RSUs are a promise from the employer to give the employee shares of the companys stock (or the cash equivalent) on a future date, as soon as the employee meets certain conditions. The vesting schedule dictates when ownership rights are activated, typically upon completing a certain number of service years. RSUs are generally subject to a vesting schedule, meaning the stock does not fully belong to the employee until such a time it is vested. During the vesting period, the stock cannot be sold. Once vested, the stock is given a Fair Market Value and is considered taxable compensation to the employee.

Some key features of RSUs include:

• RSUs are an award of stock shares, usually given as a form of employee compensation.
• RSUs are restricted during a vesting period that may last several years, during which time they cannot be sold.
• Once they are vested, RSUs can be sold or kept like any other shares of company stock.
• Unlike stock options or warrants, RSUs always have some value based on the underlying shares.
• For tax purposes, the entire value of vested RSUs must be included as ordinary income in the year of vesting.

Companies use RSUs as an incentive to attract and retain talent. RSUs provide an incentive for employees to stay with a company for the long term and help it perform well so that their shares increase in value. RSUs are appealing because if the company performs well and the share price takes off, employees can receive a significant financial benefit. RSUs encourage employees to stay for the long term and can improve retention.

One disadvantage of having RSUs as a form of compensation is that the money is not yours until the shares vest. If you leave the company or are fired before your shares are fully vested, then those shares go back to the company.