Definition
Restricted stock units (RSUs) are a form of equity pay in which an employer promises to give an employee a set number of company shares, or their cash value, once vesting conditions are met. Those conditions are usually staying employed for a set period, sometimes combined with performance targets.
How restricted stock units work
An RSU grant states the number of units, the vesting schedule and what happens if you leave. Until a unit vests, the employee owns nothing: there are no shares, no voting rights and usually no dividends, although some plans pay dividend equivalents. When units vest, the company delivers one share per unit, or sometimes the cash value, and the employee can usually keep or sell them.
A typical time-based schedule vests a four-year grant in equal parts each year, sometimes with a one-year cliff, meaning nothing vests before the first anniversary. Unvested units are normally forfeited when employment ends, unless the plan makes exceptions for situations such as retirement, redundancy or a change of control.
Equity often helps close a hire. Before the offer stage, springhire screens applicants with skills tests and video interviews from one candidate link.
How to calculate the value of RSUs
The value of vested RSUs is the number of units multiplied by the share price on the vesting date. If you are granted 400 RSUs vesting 100 a year, and the share price is 50 on the first vesting date, that tranche is worth 5,000. If the price is 60 a year later, the next 100 units are worth 6,000. If it falls to 40, they are still worth 4,000, because there is no purchase price to pay.
RSUs vs stock options
A stock option gives the right to buy shares at a fixed exercise price, so it only has value if the share price rises above that price. An RSU delivers the shares themselves at no cost, so it is worth something as long as the shares are. For the same intended value, employers therefore grant fewer RSUs than options. Listed companies commonly use RSUs because their shares are easy to value and sell, while early-stage private companies often prefer options.
Tax and hiring considerations
In many countries, the value of the shares when they are delivered is taxed as employment income, and any later gain or loss on sale is treated separately. Employers often withhold the tax by holding back some of the vested shares, known as net settlement or sell-to-cover. Timing, withholding and reporting rules differ by country, so check how RSUs are taxed wherever each employee is liable before designing a plan or making an offer.
In hiring, RSUs are often used to replace equity a candidate would forfeit by leaving their current employer, and the vesting schedule then works as a retention tool.
Frequently asked questions
A restricted stock unit is a promise from an employer to deliver one company share, or its cash value, for each unit once vesting conditions are met. Until then the employee holds no shares and has no voting rights. RSUs are a common way to give employees a stake in the company.
Unvested RSUs are usually forfeited when you leave. Units that have already vested and been delivered as shares are yours to keep. Some plans make exceptions for retirement, redundancy, disability or a change of control, so the grant agreement is the document to check.
Neither is better in every case. RSUs carry less risk because they keep value unless the share price falls to zero, while options only pay off if the price rises above the exercise price. Options can produce larger gains in a fast-growing company, which is why early-stage companies often use them.
Related terms
Part of the springhire HR glossary.
