What Are Restricted Stock Units (RSUs)?

Overview

If an employer offers equity to its workers, a restricted stock unit is one way to grant equity or the company’s shares to employees. There are other stock options, but what type of share will grant to an employee depends on the employer’s role, stage, and preference. However, it is a reward compensation that motivates a worker to give his/her best.

Furthermore, restricted stock units are transferable to the employee in the future if a certain restriction is met. Contrasting from other stock options, for RSUs, there is no need to pay something to get the grant, only you have to pay all your taxes upon receiving a share. At the same time, RSU’s worth depends on the market value of the employer’s stock. However, financial advisors must inform and assist their clients with RSUs as it can be the foremost thing of their compensation package.

Things You Should Know About RSUs!

There are certain factors to thing if your company grants you Restricted stock units. You should consider these points or talk to your company’s human resource department about RSUs.

  • The vesting schedule of RSUs is important to know because they are of no use for you until its vests. They can only be vested in a certain period.
  • On vesting, Restricted stock units become part of your taxable income.
  • Unfortunately, you must know in case of termination, retirement, or death of an employee, what are the criteria for RSUs.
  • If there are any amendments in the control of the employer so what happens to RSUs?
  • Holding you RSUs forever might not be a wise decision.

Benefits and Disadvantages of RSUs!

When a company grants restricted stock units to its employees, so there are some advantages and disadvantages of RSUs, some of them are mentioned below:

RSUs Pros:

  • The employee needs no exercise price to gain RSUs.
  • RSUs provide the benefit of financial” home run.”
  • No downside risk to the employee.
  • Restricted Stock Units give tax benefits.

RSUs Cons:

  • RSUs are not sold until the company is private.
  • The employee will not vest grant until a certain time is achieved.
  • Employers feel that in the form of RSUs, they are giving a piece of their company.

What Can Employee Do with RSUs?

The company’s arrangements can be made for its employees to receive enough grant from which they can pay due to taxes. At the time of vesting no capital tax gain treatment, with this opportunity, there is nothing to stop an employee from selling its restricted stock units. It depends on individual workers to either sell some or all of the shares. However, after vesting, RSUs are like another share of the employer’s stock. 

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Wrapping It Up!

Always remember that restricted stock units are the company’s stock compensation program. RSUs are provided to gain more interest in the company’s employees and give their best. However, it is noted if you are about to leave a company in a short period, so there is a possibility that you may get little or nothing; as to receive RSUs, you should have to wait for a certain period.

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