RSUs vs Stock Options!

RSUs:
The term restricted stock unit (RSU) is an award of stock shares (aka compensation), that comes with conditions that typically include a vesting period before they are transferred to the owner.

RSUs are restricted during a vesting period that usually lasts 3-4 years (but depends on the company), during which time they cannot be sold. Once they are vested, RSUs can be sold or kept like any other shares of company stock.

RSUs are taxed as ordinary income in the year that they vest, regards of whether you sell or keep them!

Stock Options:
Employee stock options (ESOs) are when a company effectively grants an employee the right (or option) to buy shares the company stock at an agreed-upon price and date.

The employees "compensation" is simply the difference between the "optional purchase price" or "strike price" and whatever the current stock is worth (or fair market value).

The scary thing about stock options is that they are only worth something IF the companies stock is trading higher than the price the employee has the option to purchase it for (strike price).


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