Restricted stock units

Restricted stock awards have become a popular planning tool for many corporations because stock options themselves lost some of their luster when FASB required corporations to recognize an expense for their stock options. When a restricted stock award vests, the employee or director who received the restricted stock becomes an owner of the company. And the employee or outside director has no further action to take to make it happen. The employee is now a shareholder and can vote at the annual meeting.

Restricted Stock Unit (RSU)

Publicly traded technology companies increasingly use restricted stock and restricted stock units RSUs to give employees ownership in the company. Restricted stock and RSUs are two of the simplest forms of equity compensation, and their relative simplicity is part of the reason for their popularity with companies and employees. Restricted stock is company stock that your employer gives to you as part of your total compensation, and you cannot sell or transfer it until certain conditions have been met.

Typically, your ownership in the stock vests , meaning its restrictions are removed, over time or as company or individual performance goals are met. If you leave the company, you lose your unvested shares.

Once your stock is vested and its restrictions are removed, you own the shares and may sell or transfer them. As with restricted stock, your restricted stock units vest over time or when company or individual performance goals have been met.

If you leave the company, you lose your unvested units, and they cannot be exchanged for company stock. Once your RSUs vest and the company exchanges your units for actual shares of company stock usually at a ratio , you own the shares and can sell them or transfer them. Some RSUs are settled in cash, and some offer you the option of receiving shares or cash. By accepting your grant, you instruct the company how you would like required taxes withheld. Vesting encourages employees to stay with the company.

If you leave before your vesting is complete, you will lose the portion of the restricted stock or RSUs that have not vested. Once you receive shares of stock from the company, either because of the removal of restrictions on restricted stock or because of the conversion of RSUs to actual shares, you have several options. You can continue to hold the shares, you can transfer them to another brokerage account and hold them or sell them, or you can sell them and transfer the cash to a bank account.

The main difference between restricted stock and restricted stock units is that with restricted stock you receive shares of stock up front whereas with RSUs the company pledges to transfer shares of stock to you in the future. Restricted shares typically have voting rights and are entitled to receive dividends. RSUs are not actual shares; therefore, they do not have voting rights and are not entitled to receive dividends. Some companies pay RSU holders an amount equal to the dividends they would have received if they held actual shares.

For most people, the difference between receiving restricted stock and RSUs is negligible—with both, you own company stock after a vesting period. The value is easy to calculate. Multiply the number of shares or units assuming a conversion ratio of units to shares by the current stock price of the company. The result is the total value of your restricted stock or RSU. Your online account may break down the value further into vested and unvested portions.

Restricted stock is not taxable to you when you receive it. The stock becomes taxable to you as it vests. The market value of the shares you receive is taxable to you as ordinary income and is reported on your paystub. Taxation of RSUs works similarly. The market value of the shares that you receive is taxable to you as ordinary income. Your company must withhold taxes from the income you receive in the form of shares.

Because you receive income in the form of shares and not cash, there is no cash available to withhold for taxes. To work around that issue, most companies either withhold some of your shares to pay taxes or automatically sell some of your shares to pay income taxes. Your restricted stock and RSU income is subject to payroll taxes in addition to federal and state income tax. Payroll taxes include federal Social Security and Medicare taxes and potentially additional state and local taxes depending on where you live.

After you receive actual shares, your cost basis in those shares is their market value on the day you receive them. Taxation after you receive your shares follows the normal rules for gains and losses on investments. Despite differences in their structure, restricted stock and RSUs are similar in their vesting, valuation, and taxation. Be aware of your vesting schedule to know when your shares will be vested and available for sale or transfer.

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Wealth Management. Corporate k. Client Login. June 13, An Introduction to Restricted Stock and RSUs Publicly traded technology companies increasingly use restricted stock and restricted stock units RSUs to give employees ownership in the company.

How Restricted Stock Units RSUs Work Restricted stock is company stock that your employer gives to you as part of your total compensation, and you cannot sell or transfer it until certain conditions have been met.

How Are They Different? What Are They Worth? Taxation Restricted stock is not taxable to you when you receive it. Wrap-up Despite differences in their structure, restricted stock and RSUs are similar in their vesting, valuation, and taxation.

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Restricted stock units (RSU) are a form of stock-based compensation used to reward employees. RSUs will vest at some point in the future and. Restricted stock units (RSUs) are a way your employer can grant you company shares. RSUs are nearly always worth something, even if the stock price drops.

Exhibit 10 q. What are RSUs? RSUs are granted under the Plan and are subject to the terms of the Plan and this Prospectus.

But regardless of the type, you may get a chance to own a piece of the company, which motivates you to do your best work for the company. Instead, you are usually only responsible for paying the applicable taxes when you receive the shares.

Restricted stock , also known as letter stock or restricted securities , is stock of a company that is not fully transferable from the stock-issuing company to the person receiving the stock award until certain conditions restrictions have been met. Upon satisfaction of those conditions, the stock is no longer restricted, and becomes transferable to the person holding the award.

FAQs – Restricted Stock Unit Plans

A restricted stock unit RSU is a form of compensation issued by an employer to an employee in the form of company shares. RSUs give an employee interest in company stock but they have no tangible value until vesting is complete. The restricted stock units are assigned a fair market value when they vest. The employee receives the remaining shares and can sell them at his or her discretion. At the end of , the Financial Accounting Standards Board FASB issued a statement requiring companies to book an accounting expense for stock options issued.

Restricted Stock Units (RSUs)

An RSU is a contractual right to receive company shares or an equivalent cash payment at some point in the future. They are an increasingly popular form of equity award offered by companies of all shapes and sizes. You have likely been given this equity award because you are valued, and your employer wants you to stay with the company and meet certain performance benchmarks. As such, RSUs can be thought of as a form of deferred compensation. You do not owe any tax at the time of the RSU grant. In fact, you will not owe tax until you actually receive the shares. RSUs typically come with a vesting schedule, and there may be performance conditions that must be satisfied before the stock can be delivered. Once RSUs vest, they will be delivered to you and you will recognize ordinary income based on the fair market value of the stock at the time of delivery. Unlike with stock options, no analysis regarding when to exercise is needed.

Exhibit Grant and Terms of Restricted Stock Units.

A restricted stock unit RSU is a form of equity compensation used in stock compensation programs. An RSU is a grant valued in terms of company stock, but company stock is not issued at the time of the grant.

What are restricted stock units (RSUs)?

Publicly traded technology companies increasingly use restricted stock and restricted stock units RSUs to give employees ownership in the company. Restricted stock and RSUs are two of the simplest forms of equity compensation, and their relative simplicity is part of the reason for their popularity with companies and employees. Restricted stock is company stock that your employer gives to you as part of your total compensation, and you cannot sell or transfer it until certain conditions have been met. Typically, your ownership in the stock vests , meaning its restrictions are removed, over time or as company or individual performance goals are met. If you leave the company, you lose your unvested shares. Once your stock is vested and its restrictions are removed, you own the shares and may sell or transfer them. As with restricted stock, your restricted stock units vest over time or when company or individual performance goals have been met. If you leave the company, you lose your unvested units, and they cannot be exchanged for company stock. Once your RSUs vest and the company exchanges your units for actual shares of company stock usually at a ratio , you own the shares and can sell them or transfer them. Some RSUs are settled in cash, and some offer you the option of receiving shares or cash. By accepting your grant, you instruct the company how you would like required taxes withheld.

An Introduction to Restricted Stock and RSUs

Fidelity does not provide legal or tax advice and the information provided above is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific legal or tax situation. Skip to Main Content. Search fidelity. Investment Products. Why Fidelity. What is a Restricted Stock Unit? How is a Restricted Stock Unit different from control and restricted stock?