Restricted Stock Unit

For a long time there was only one way to pay someone in equity: the stock option, a right to buy company shares at a fixed price. The design looks tidy from the outside, since the holder gains whatever the share price rises above that fixed strike price. Two burdens sat on the receiving end, though, and neither showed up in the offer letter.

The first is cash. Turning the right into real shares means paying the strike price. A right to buy 5,000 shares at $4 requires $20,000 on hand. The burden bites hardest on the way out the door. Options typically expire 90 days after someone leaves, and a person changing jobs rarely has $20,000 in spare cash sitting in that window. This is how people work somewhere for four years and walk away with zero shares.

The second is that the value goes to zero when the share price falls. If the price drops below $4 there is no reason to buy, so nothing is lost in cash terms — but the number printed in the offer letter is gone too. At public companies this happens often enough to matter.

Once an HR lead has answered "what's my option worth right now?" with "at today's price, nothing" a few times, equity stops working as a reason to join or stay. A restricted stock unit (RSU) removes both problems at once by dropping the purchase step and simply handing over the shares.

What arrives at grant is not stock. It's a unit of promise — a document saying the company will transfer 2,000 shares once four years of service are complete — and only the portion whose conditions are met converts into real shares. Four steps.

1. The grant. Quantity and schedule are fixed: 2,000 shares released across four years, for instance. Nothing lands in any account at this point.
2. Vesting. The release follows a vesting schedule tied to time served. With a four-year schedule and a one-year cliff, someone who leaves at eleven months takes nothing, while someone who reaches twelve months has 500 shares vest at that instant and roughly 42 more each month after.
3. Tax. The share price at the moment of vesting counts as income and is taxed. If 500 shares vest while the price is $15, that reads as $7,500 of income. Because the bill arrives without any sale having happened, companies commonly sell part of the vesting shares automatically and remit the tax on the employee's behalf. That withholding is why a 500-share vest can show up in the account as something closer to 320 shares.
4. Selling. The remaining shares belong to the holder, who picks the timing. At a public company the only constraint is the blackout period — the stretch before an earnings release when information known inside the company has not yet reached the share price, during which employees are barred from trading.

Steps 2 and 3 are where this diverges from options. Nothing has to be bought, so leaving never requires assembling cash, and a price below the grant-date price still leaves shares worth whatever they are worth. The trade is that tax lands at vesting rather than at sale.

Public companies and companies close to going public are the main users. Vesting needs a market to sell into, because that is what turns the vesting shares themselves into the money for the tax bill. Grant them at a private company with no market and the employee owes cash tax on stock they cannot sell. That is exactly why a Series A company issues options instead.

In an offer conversation the grant sits beside base salary and bonus as one line item. It gets written two ways. Stated as a share count, the future value moves with the price. Stated as a dollar amount, the share count is fixed using the grant-date price. Miss that distinction while comparing total rewards and two identical offers will look different — or two different offers will look identical.

It also gets used to make staying worth something, since unvested shares put a price on leaving. So companies issue a second grant as the original four years wind down. Layering a fresh 2,000-share, four-year grant on in year three means there is always an unvested balance, whenever someone stops to count. A second grant also resets that clock quietly, without the negotiation a salary change would set off.

"We can do RSUs instead of options. Nothing to exercise, and it vests across four years."

The condition being described is one without a purchase burden attached.

"Of the 500 shares vesting this cycle, 180 get sold automatically for taxes."

Flagging in advance why the number of shares that actually land looks small.

"The equity figure in the offer is calculated at today's share price."

A caveat that the value four years out will be something else.

At Pagedeck this came up during an offer negotiation with a senior engineer. The candidate had been receiving RSUs at their previous employer and asked for the same structure. Grace said no. Pagedeck is private, just past its Series A, so vested shares would have nowhere to be sold while the tax bill arrived on schedule anyway.

What Grace did instead was put the current strike price in writing, along with how long the exercise window stays open after someone leaves. The candidate's actual worry was never the structure — it was ending up needing cash a few years later and not having it.

The most common misread is treating a grant as shares already owned. The document says 2,000, so it reads that way. What exists at that point is a conditional promise. Leave before clearing the one-year cliff and the balance is zero shares. Someone who doesn't know that and moves to another company in month eleven walks out with nothing rather than 2,000 shares. The vesting dates are written in the grant document, so they're the first thing to check when picking a departure date.

Assuming RSUs always beat options is the other one. Looking only at the fact that the value can't reach zero, the conclusion follows easily. But the same dollar value buys a different number of units in each structure, and if the share price multiplies by ten the option holder gains far more. The tax timing is the weaker side too: because the bill comes at vesting rather than at sale, a price that halves right after a vest leaves someone taxed at the high value while holding stock at the low one.