Restricted Stock Units Explainer
A restricted stock unit, or RSU, is a contractual promise to deliver company shares or their cash value after specified vesting conditions are satisfied. At grant, the employee generally does not own issued shares. The award may depend on continued service, performance goals, or both.
When an RSU vests and settles, the value is generally treated as compensation under U.S. tax rules, with withholding often covered by selling or withholding some shares. A company can delay settlement beyond vesting in certain arrangements, making the plan document and applicable deferred-compensation rules important.
RSUs usually retain some value as long as the share price remains above zero, unlike options that can be underwater. They still expose employees to price changes, forfeiture before vesting, tax timing, and concentration. Private-company awards may have double-trigger conditions tied to both service and a liquidity event.
Companies recognize compensation expense and may issue new shares or use treasury shares at settlement, affecting dilution and cash. Employees should review vesting dates, performance definitions, dividend equivalents, settlement form, withholding method, transfer restrictions, and what happens after departure or a change in control.
An RSU is an award obligation, not usually an issued share at grant.
Ownership rights begin according to the settlement terms.
Compensation is commonly recognized when units vest and settle.
Withholding and deferred-settlement rules can change the cash outcome.
RSUs generally have value whenever the underlying share does.
They still carry price, forfeiture, liquidity, and concentration risk.
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