Stock options allow you to purchase shares in your company’s stocks at a predetermined price (i.e. strike price) for a limited number of years. Employers encourage employees to stay longer because there’s typically a vesting period before the options become exercisable. This means that you have to be employed for a certain amount of time before you can actually exercise (or buy) the stock you were granted.
Restricted stock units (RSUs) are the most common type of equity compensation and are typically offered after a private company goes public or reaches a more stable valuation. Like stock options, RSUs vest over time, but unlike stock options, you don’t have to buy them. As soon as they vest, they are no longer restricted and are treated exactly the same as if you had bought your company’s shares in the open market.1
1. HBR