RSU Basics: Complete Guide to Restricted Stock Units

Table of Contents:

• What Are Restricted Stock Units?

• How Do RSUs Work?

• RSU Vesting Schedules and Timeline

• RSUs vs Stock Options: Key Differences

• Tax Treatment of RSUs

• When Are RSUs Taxed?

• RSU Cost Basis and Capital Gains

• Pros and Cons of RSUs

• RSU Best Practices for Employees

• Common RSU Mistakes to Avoid

Restricted stock units (RSUs) represent a company’s promise to give you shares of stock at a future date, provided you meet certain conditions. Unlike stock options, which give you the right to purchase shares at a set price, RSUs convert directly into shares once they vest. The name of this equity option refers to both the contractual nature of the grant and the time-based restrictions that typically govern when you receive the shares.

However, RSUs are more than just deferred compensation. They function as retention tools, aligning employee interests with company performance while providing predictable value even in volatile markets. A 2024 survey by the National Association of Stock Plan Professionals found that RSUs have become a popular form of equity compensation, offered by 95% of companies that offer service-based full value awards.

In a way, RSUs are unfunded, unsecured promises. You hold no shareholder rights — no voting power, no dividends — until the units vest and convert into actual shares. This distinction matters for both financial planning and tax purposes. The company essentially owes you shares in the future, but those shares remain company property until vesting conditions are satisfied.

Material risks accompany RSU grants. Company bankruptcy could render RSUs worthless, as you rank as an unsecured creditor. Share price declines between grant and vesting reduce the value you ultimately receive. Additionally, vesting triggers immediate tax obligations regardless of whether you sell the shares, potentially creating cash flow challenges.