The definition
A restricted stock unit, or RSU, is a grant of company shares that you receive over time rather than all at once. When you join, the company promises you a number of units, and those units convert into real shares on a vesting schedule. Unlike stock options, you do not pay anything to receive RSU shares when they vest; they simply become yours. The restriction in the name refers to the fact that you cannot have the shares until the vesting conditions are met, which is almost always continued employment over a set period.
RSUs have become the dominant form of equity at large public tech companies because they are simple and they always have value as long as the share price is above zero. A stock option can end up worthless if the strike price is higher than the market price, but an RSU is a real share, so even after a price drop it is worth something. That simplicity is why RSU grants are the standard at the FAANG-tier employers and why understanding them is essential to reading a senior offer.
How RSUs vest and are taxed
A typical RSU grant vests over four years. The most common schedule used to be a one-year cliff followed by quarterly or monthly vesting, but many large companies now front-load or back-load the schedule, so it is worth reading the exact terms. A front-loaded schedule might vest 35 percent in year one and taper down; a back-loaded one might do the opposite to encourage you to stay. The total grant divided by the vesting years gives you the annual value to use in your total compensation calculation.
RSUs are taxed as ordinary income at the moment they vest, based on the share price on the vesting date, regardless of whether you sell. This catches people out: you owe tax on the value even if you hold the shares and the price later falls. Many companies automatically sell a portion of each vesting tranche to cover the withholding, which is called sell-to-cover. Any gain or loss after vesting is then a separate capital gains question when you eventually sell.
Why RSUs matter for your offer
Because RSUs make up a large share of senior tech total compensation, the size and refresh policy of the grant is often where the real money in a negotiation sits. Recruiters frequently have more flexibility on the equity grant than on base, especially the initial grant size and whether you get a refresh in year one. If you are told base is capped at your level, the RSU grant is usually the next lever to push.
Watch the refresh question carefully. Your initial grant vests over four years and then stops; without refresh grants, your equity income falls off a cliff in year five. Strong companies issue annual refresh grants that overlap, smoothing the income. Ask explicitly about the refresh policy before you accept, because an offer with a big initial grant and no refreshes can be worth less over a real tenure than one with a smaller grant and reliable refreshes.
Frequently asked questions
- What is the difference between RSUs and stock options?
- An RSU is a share you receive for free when it vests, so it always has value if the stock is above zero. A stock option is the right to buy a share at a fixed strike price, which is only worth exercising if the market price is higher than the strike. RSUs are simpler and lower-risk; options have more upside and more downside.
- Do I pay tax on RSUs when they vest or when I sell?
- Both, at different stages. RSUs are taxed as ordinary income on their value at vesting, even if you hold them. If you later sell at a higher price, the additional gain is taxed as a capital gain; if you sell lower, you may have a capital loss. Tax rules vary by country, so confirm your local treatment.
- What happens to my RSUs if I leave the company?
- You keep whatever has already vested and forfeit everything that has not. This is why leaving close to a vesting date can mean walking away from a large amount, and why a signing bonus from a new employer is often used to bridge the unvested equity you would lose by moving.