Restricted Stock Units: The Basics
Many large tech companies like to compensate their employees through other means than the normal regular recurring paycheck or base pay. One of the most common ways to do this is through the Restricted Stock Unit or RSU. An RSU is compensation in the form of company stock. RSU’s will be set up on a vesting schedule, which determines when the shares will actually become yours. For a company like Amazon, RSU’s are a very important piece of the total compensation package.
What is an RSU?
An RSU is a Restricted Stock Unit. One RSU is the same as 1 share of stock in a company. If you are awarded 50 RSU’s, this is the same as 50 shares of stock in that company.
How much is an RSU worth?
A single RSU is worth the same as 1 share of stock in the company. For example, 1 RSU of Amazon is worth the same as 1 share of AMZN stock. Currently (9/22/2020) AMZN trades at $3,080/share. If the above mentioned award of 50 shares were at Amazon, it would be worth:
50 shares x $3080 = $154,000
What is a vesting schedule?
A vesting schedule establishes when the RSU’s become yours. RSU’s are typically given to you in the form of an “award” as part of your compensation. This award is usually broken up into multiple pieces that have different vest dates. As an example, using an Amazon New Hire RSU award, the vesting schedule would look like the following.
Sample Amazon New Hire RSU Vesting Schedule
- 1/1/2020 – 3 Shares (5%)
- 1/1/2021 – 7 Shares (15%)
- 1/1/2022 – 10 Shares (20%)
- 7/1/2022 – 10 Shares (20%)
- 1/1/2023 – 10 Shares (20%)
- 7/1/2023 – 10 Shares (20%)
- Total of 50 shares vesting over 4 years
On each of these dates, you will take ownership of the given number of RSU’s that vest.
I’ll share more about what you can do with RSU’s once they vest in future posts.