What is an RSU?


Answer: A restricted stock unit or RSU is the right to receive a share of common stock (or an equivalent value in cash) upon certain vesting conditions.  

Following satisfaction of certain vesting conditions, the company would deliver to the holder of the RSUs whole shares of common stock, cash or a combination of common stock and cash.  RSUs generally vest when two conditions are met - a service vest period has been satisfied, and an exit liquidity event has occurred prior to the expiration date of the RSUs. 
Some companies also require the individuals to be employed at or providing services to the company upon satisfaction of the exit liquidity event.  

At this time, the RSUs will be settled and taxes will be owed on the full value of the settled shares (or cash) at regular compensation tax rates (based on the fair market value of the common stock at the time of settlement).  

Unlike options, RSUs have value even if the value of the company declines (since there is no exercise price to pay), but still provide upside based on the company’s results over time.  Because there is no exercise payment required, a grant of RSUs usually consists of a smaller number of shares than a grant of options.