Restricted Stock Unit vs. Stock Options
Basis |
Restricted Stock Units (RSUs) |
Stock Options |
---|---|---|
Nature of Grant |
Grants of company stock |
Grants the right to purchase company stock at a predetermined price |
Purchase Price |
Typically no purchase price required |
Often has an exercise price that must be paid to acquire shares |
Tax Treatment |
Taxed as ordinary income when vested |
Tax treatment varies based on whether they are non-qualified or incentive stock options |
Tax Timing |
Taxed upon vesting |
Taxed upon exercise (for non-qualified options) or sale (for incentive options) |
Value Retention |
Have value even if the stock price does not increase |
Have value only if the stock price exceeds the exercise price |
Risk |
Employees bear no financial risk |
Employees risk losing the exercise price if the stock price does not exceed it |
Alignment of Interests |
Directly aligns employee interests with those of shareholders |
Indirectly aligns employee interests through potential stock price appreciation |
Flexibility |
Employees do not have the option to choose when to be taxed |
Employees have more control over the timing of taxation |