A type of deferred compensation where stock is paid out at some future date (i.e., after it has vested), assuming the employee remains with the company and meets the vesting requirements tied to issuance of the security. If the employee remains with the company and all vesting requirements are met, these specific benefits entitle the recipient to the full value of the RSUs – meaning they will always have value, in contrast to options whose value can erode over time and may be potentially rendered valueless.
Vesting requirements for restricted stock units may be relatively straightforward (an employee remains with the company for five years, etc.) or may be tied to highly-specific development or financial milestones. In either case, if an employee leaves the company before the units vest, they may be subject to forfeiture. Once vesting requirements are complete, a portion of the fair market value will be set aside for tax purposes as the units will be treated as income. The remainder of the units may be sold at the employee’s discretion. As these benefits are not technically shares, they are not entitled to dividends.
Husband: “I have been offered some restricted stock units that are going to make us rich someday.”
Spouse: “That is incredible! What are the vesting terms?”
Husband: “I just have to remain with the company for 12 years and rescue an additional 30 oompa loompas.”
Spouse: (Blinks.) “An ADDITIONAL 30 oompa loompas? The company employs some NOW? They really exist? You have them manufacturing auto parts?”
Husband: “Keep up, babe.”