Restricted Share Unit Award Agreement: What You Need to Know

A restricted share unit (RSU) award agreement is a type of equity compensation offered by employers to their employees. An RSU gives the employee the right to receive shares of the company`s stock or cash, based on the performance of the company`s stock over a certain period of time. In this article, we`ll take a closer look at RSUs and the key information you need to know about RSU award agreements.

What Is an RSU Award Agreement?

An RSU award agreement is a contract between the employer and the employee that outlines the details of the RSU compensation. The agreement specifies the number of RSUs granted, the vesting schedule, the timing of the payout, and other terms and conditions.

How Do RSUs Work?

An RSU is a promise by the employer to provide the employee with a certain number of shares of the company`s stock or cash equivalent, based on the performance of the company`s stock over a certain period of time. RSUs are typically granted as part of an employee`s compensation package, with the hope of incentivizing the employee to stay with the company and work towards the company`s success.

The RSUs don`t immediately convert to stock but instead become vested over a period of time, which is typically three to five years. Once the RSUs become vested, the employee can typically choose to receive the shares or cash at that time or wait for a later date.

Why Are RSUs Popular?

RSUs are popular because they offer a number of benefits to both employers and employees. For employers, RSUs are a way to incentivize and retain valuable employees. RSUs also align the employee`s interests with that of the company`s shareholders, as the employee only receives the shares or cash equivalent if the company performs well.

For employees, RSUs offer a potential windfall if the company`s stock performs well. RSUs can also be an attractive compensation option for employees who don`t want or can`t afford to purchase company stock outright.

What to Look for in an RSU Award Agreement

If you`re considering an RSU award agreement from your employer, there are a number of key factors to consider before signing on the dotted line. These include:

– The vesting schedule: Make sure you understand when the RSUs will become vested, as well as any performance metrics that need to be met to trigger vesting.

– The payout timing: Understand when you`ll be able to receive the shares or cash equivalent, and whether you have the option to delay the payout.

– The tax implications: RSUs are taxed as ordinary income when they`re paid out, so make sure you understand how much you`ll owe in taxes and plan accordingly.

– The risk/reward tradeoff: RSUs are a form of equity compensation, which means there`s always the risk that the company`s stock won`t perform well. Make sure you`re comfortable with this risk/reward tradeoff before accepting an RSU agreement.

In summary, an RSU award agreement is a type of equity compensation that can be an attractive option for both employers and employees. If you`re considering an RSU agreement, make sure you understand the vesting schedule, payout timing, tax implications, and risk/reward tradeoff before signing on the dotted line.