Being an employee of a publicly-traded company can be super fun and lucrative for many reasons. Restricted Stock Units (RSUs) are one of those reasons! You may be wondering what those are and possibly confusing them with stock options. This article will explain the difference between the two and why RSUs are better. One thing to know for now is that restricted stock units are what you want.
What Are Restricted Stock Units?
RSUs are a way for an employer to grant company shares to an employee. The company, because of certain laws, will set conditions on when they can issue the employee shares. Similarly, they will set the conditions for when that employee can sell those shares. The conditions are either based on performance goals or length of time with the company. Or, sometimes both! All of these conditions are included in your compensation package.
Restricted Stock Units vs Stock Options
Don’t worry if you’ve confused these terms, it’s very common. If you’ve never even heard of RSUs, you’re in good company. That was me before I started my first company and it actually went somewhere. So, you are not behind the curve by any means.
Let’s first start with stock options. Stock options are a way for a company to give the right but not the obligation to buy or sell a stock at an agreed-upon price and date. Notice the language here. The company is not providing you the shares they are giving you the option to buy them. The only similarity with RSUs is that stock options are on a specific schedule based on securities laws.
RSUs are different from Stock Options because the company is providing you with those shares on a specific vested schedule. Usually set for performance goals and time with the company. It is the same way when you as the employee are looking to sell your shares. A good example of this is when you hear about CEOs selling a specific amount of their shares. If you play it smart it can be very lucrative for the employee.
RSUs are a tool for companies to get top talent. It’s a lucrative thing for you when the company’s stock is rising. Hopefully, this arms you with the knowledge that you need. There is way more that goes into RSUs but that’s for your additional learning. Understanding how to negotiate the terms of your RSUs is very important. Hundreds of thousands of dollars could be on the line. So, keep learning!