what are restricted stock units?
What Are Restricted Stock Units (RSUs) and Why Do They Matter?
If you've ever come across a job offer from a big company—especially in tech or finance—you might have seen something called Restricted Stock Units (RSUs) in the compensation package. It sounds fancy, but what does it actually mean? And more importantly, is it as good as it looks?
The Simple Breakdown
Imagine you start a job at Google, and instead of just offering you a salary, they say, "We’ll also give you $50,000 worth of stock—BUT, you don’t get it all at once." That’s an RSU.
RSUs are basically company shares given to employees, but with a catch: they only become yours after a set period of time. This process is called vesting, and it’s designed to keep employees around.
How RSUs Work
Let’s say your company gives you $40,000 in RSUs, and they vest over four years. A common schedule looks like this:
Year 1: 25% vests → You now own $10,000 worth of stock
Years 2-4: The remaining 75% vests in equal amounts each year
If you leave early? You forfeit the unvested stock. It’s the company’s way of making sure you stick around.
Why Companies Give Out RSUs
Retention Tool – Companies don’t want you quitting after six months. RSUs give you a reason to stay.
Aligning Interests – If you own stock, you want the company to do well because your shares go up in value.
Competitive Hiring – RSUs are a big deal in tech, finance, and startups. Companies use them to attract top talent.
RSUs vs. Stock Options: What’s the Difference?
Both RSUs and stock options involve stock-based compensation, but they’re not the same:
RSUs = You get the stock for free (once vested).
Stock Options = You have the option to buy stock at a set price (which might be higher than the current market price).
RSUs are generally safer because even if the stock price drops, you still get something. With stock options, if the stock price falls below the exercise price, your options could become worthless.
Taxes: The Catch You Can’t Ignore
RSUs might sound like free money, but there’s a big catch—taxes.
When your RSUs vest, the IRS sees them as income, meaning you owe income tax on them immediately.
If you hold the stock and it goes up in value, you’ll owe capital gains tax when you sell it.
Most companies automatically withhold some of your RSUs to cover taxes, but it’s something you need to keep in mind before deciding to hold or sell your shares.
RSUs and Long-Term Wealth Building
If your company’s stock performs well, RSUs can turn into a massive wealth-building tool. But there’s also risk—if the stock tanks, your RSUs could be worth way less than you expected.
A smart strategy? Diversify. If RSUs make up a big part of your income, you might not want to keep all your wealth tied up in one company’s stock.
The Teenagetraders Takeaway
RSUs aren’t just for Wall Street execs—understanding them is key if you’re planning a career in tech, finance, or any industry that offers stock-based compensation. The main takeaways:
✔ RSUs = Company stock that vests over time
✔ You owe taxes as soon as they vest
✔ Holding or selling depends on risk and diversification
Would you rather get RSUs or a cash bonus? Let’s discuss! 🚀📈
