Restricted Stock Unit
There are different ways to reward employees based on their performance and dedication. Giving incentives can boost employees' morale and motivate them to work harder. Companies may offer monetary incentives or company stock to deserving employees. In addition to Stock Options, Restricted Stock Units (RSUs) are also a popular method for companies to enhance employee performance.
🧐What is a RSU?
A Restricted Stock Unit (RSU) is a type of equity compensation used by companies as a form of employee incentiviation or reward. They are typically granted as a reward for past performance or as an incentive to motivate employees to stay with the company long-term. When an employee receives a RSU, they are granted a promise to receive a certain number of shares of the company at a predetermined date in the future, typically upon the completion of a vesting schedule.
Similar to that of stock options, the vesting schedule specifies the conditions that must be met for the employee to receive the shares.
For example, a typical vesting schedule might specify that the employee will receive one-third of the shares after three years, one-third after four years, and one-third after five years with the company.
Until the RSUs vest and the shares are issued, the employee does not actually own any stock in the company and does not have the right to cast a vote or receive dividends. However, the employee may be able to sell granted RSUs on the secondary market or receive cash equivalents in lieu of the shares once they vest. RSUs are often used as a way to align employee incentives with the long-term success of the company.
💁♀️How are RSUs Different from Stock Options?
RSUs are similar to stock options, but with some key differences.
1️⃣First, RSUs are generally simpler and more straightforward than stock options.
With RSUs, an employee is granted a specific number of shares in the company, but they do not have to pay anything upfront to receive those shares. Instead, the shares are subject to a vesting schedule, which means that the employee must stay with the company for a certain period of time before they are able to receive the shares.
2️⃣Second, RSUs are typically less risky than stock options.
With a stock option, an employee has the right to purchase a certain number of shares in the company at a set price, known as the strike price. If the price of the company's stock goes up, the employee can exercise their option and purchase the shares at the strike price, which can later be sold for a profit. However, if the price of the stock depreciates, the option may expire and be worthless, and the employee will not reap any benefits.
🙋How Can I Better Manage RSUs?
If you are a startup that has already granted or is considering granting RSUs, you can operate and manage them more efficiently through the Quotabook’s RSU management solution!
Trust QuotaBook with your RSU needs and we will deliver. ✨
※ Legal disclaimer
Make Equity Complete — QuotaBook is a global equity management platform with a mission to create an ecosystem for private companies and their investors and employees. Leaving spreadsheets and manual works behind, every stakeholder can connect online and sync crucial data on equity such as cap table or employee stock options. It is the leading platform used by top startups and VCs in Asia, backed by Y Combinator.
This piece is written for information purposes only and is not intended as financial or legal advice. QuotaBook does not assume any reliability for dependence on the information provided above.