RSU and PSU ---Denise Xia

RSU(Restricted Share Unit) is a kind of compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock immediately, but instead receives it according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the employer for a particular length of time. The RSU are assigned a fair market value when they vest. Upon vesting, they are considered income, and a portion of the shares are withheld to pay income taxs. The employee receives the remaining shares and can sell them at any time.

For example, suppose Marus receives a job offer. Because the company thinks Marus’s skill set it particularly valuable and hopes he will remain a long-term employee, it offers part of his compensation as 500 RSUs, in addition to a generous salary and benefits. The company’s stock is worth $40 per share, making the RSUs potentially worth an additional$20,000. To give Marus an incentive to stay with the company and receive the 500 shares, in puts them on a five-year vesting schedule. After one year of employment, Marus will receive 100 shares; after two years, another 100, and so on until he received all 500 shares at the end of five years.Depending on how the company’s stock performs, Maurs may actually receive more or less than $20,000.

PSU(Performance Share Unit) is similar to RSU. But PSUs are Units whose grant or vesting is in whole or in part conditioned on the attainment of specified performance goals. Otherwise, RSUs is not conditioned. PSU’s goal is to tie managers to the interests of shareholders. Their goal is similar to employee stock-option plans, as they provide an explicit incentive for management to focus their efforts on maximizing shareholder value.

Note that in the case of performance shares, the manager receives the shares as compensation for meeting targets, as opposed to stock-option plans where employees receive stock options as part of their usual compensation package.