Restricted Stock Units (RSUs) are a form of equity compensation that companies may use to reward employees. RSUs are similar to stock options in that they give employees the right to acquire shares of the company's stock. However, unlike stock options, RSUs do not give employees the right to purchase shares at a certain price (strike price). Instead, employees receive shares or cash equivalent of shares at a future date or vesting schedule.
RSUs are taxed as ordinary income when they vest, meaning that the employee must pay income tax on the fair market value of the shares received.
The shares underlying the RSUs are typically received by the employee when the RSUs vest. Vesting usually occurs over a period of time and is based on a schedule determined by the company.
Once an employee receives the shares underlying the RSUs, they can sell them or hold on to them. If an employee chooses to sell the shares, they will need to do so through a brokerage account. If they choose to hold on to them, they will become a shareholder of the company and will be entitled to any dividends or voting rights associated with the shares.
In the event of a merger or acquisition, RSUs are generally treated the same as other forms of equity. They may be converted into shares of the acquiring company or cashed out at their fair market value.
If an employee leaves the company, their unvested RSUs will typically be forfeited unless the company has a different policy in place.
RSUs are valued based on the fair market value of the shares underlying them at the time they vest. The value of the RSUs will fluctuate with the value of the shares.