Restricted Stock Units (RSUs)
Definition
A promise from your employer to give you shares of company stock on a future date once certain conditions (typically a vesting schedule and/or a liquidity event) are met. Unlike stock options, RSUs have no strike price — you receive full shares. At public companies, shares are delivered and immediately sellable. At private companies, RSUs often have a "double trigger" requiring both vesting and a liquidity event.
Real-World Example
Google grants you 400 RSUs vesting over 4 years. Every quarter, 25 shares vest. When those shares vest, they are deposited into your brokerage account and the value is taxed as ordinary income. If the stock is $150/share, each quarterly vest gives you $3,750 in stock (pre-tax).
Common Mistake
Not accounting for taxes at vesting. RSUs are taxed as ordinary income when they vest. Most companies sell a portion of your shares automatically to cover withholding ("sell-to-cover"), so you receive fewer shares than granted. A grant of 400 RSUs might net you ~260 shares after taxes.
Why It Matters
RSUs are the dominant form of equity at large tech companies. They are simpler than options (no exercise decision, no strike price) but you must plan for the tax hit at vesting. RSUs always have value as long as the stock price is above $0.
Related Terms
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