Definition (canonical)
RSUs (Restricted Stock Units) are a promise of company shares delivered over time: units vest on a schedule, and at each vest date real shares land in your account — taxed then as ordinary income at their market value. Unlike options, there's nothing to buy and no strike price: vested RSUs are worth the share price, full stop — which is why they dominate compensation at public and late-stage companies.
Mechanics — grant, vest, deliver, tax
The lifecycle: a grant (e.g., 1,000 units) with a vesting schedule — the classic 4 years with a 1-year cliff (25% at month 12, then monthly or quarterly), though public companies increasingly vest evenly without cliffs. At each vest, units convert to shares; their market value that day is ordinary income (payroll-taxed like salary) — brokers typically "sell-to-cover", auto-selling a slice for withholding. From then on you hold plain shares: later gains or losses are capital gains territory, measured from the vest-date price. Two consequences people learn late: RSUs create tax bills on schedule regardless of whether you sell (income you didn't feel in cash), and unvested units evaporate at resignation — the schedule IS the retention device, and "how much is unvested" is the real number in any counteroffer math.
RSU vs options — and the startup twist
Options give the right to buy at a strike: powerful when the price multiplies (leverage), worthless underwater, and they demand cash and decisions (exercise windows, tax elections). RSUs are simpler and safer: no strike, no underwater state, value tracks the share price one-to-one — but no leverage either; a 3× stock makes an option holder ~5–10× on paper, an RSU holder exactly 3×. That's why stage decides the instrument: early startups grant options (max upside, low current value — the wider ESOP logic), later stages and public firms grant RSUs (retention with certain value). The private-company twist: double-trigger RSUs — vesting requires BOTH time served AND a liquidity event (exit or IPO), protecting employees from tax on shares they can't sell; single-trigger RSUs in a private company are a tax trap wearing a benefit's clothes — read the plan document for the word "trigger" before celebrating a grant.
Managing a position — the seller's dilemma
The rational default surprises people: sell at vest. At vest you've been taxed as if paid cash and handed shares — holding them is choosing to invest that cash in your employer's stock, doubling down on the entity that already carries your salary risk. Concentration discipline: many advisors cap single-stock exposure at 10–15% of net worth; long-tenured employees at hot companies routinely wake up at 60%+. Practicalities: trading windows and blackout periods constrain timing (10b5-1-style plans automate around them), vest dates are known in advance — so is the tax bill, budget it; and in negotiations compare grants in DOLLARS over the vesting period, not unit counts — 10,000 units means nothing without the price and the schedule.
FAQ
Do RSUs pay dividends before vesting? Usually not; some plans accrue "dividend equivalents" paid at vest — plan document, not assumption.
What happens to RSUs in an acquisition? Typically converted to acquirer RSUs or cashed out per the merger terms; unvested portions may accelerate (single/double-trigger acceleration clauses decide).
Can a Polish or EU company grant RSUs? Economically yes (phantom/RSU-style plans are common); tax treatment varies sharply by country — local advice before the plan, not after the first vest.
Related: ESOP · Equity · Cap Table · Exit Reviewed: 2026-07-20 · Sources: equity compensation canon