RSUs have become the dominant form of equity compensation at public technology companies and many late-stage private companies because they offer simpler economics for the employee than stock options. The employee doesn’t need to pay an exercise price; on each vesting date, a portion of the granted shares simply becomes the employee’s property (with some shares typically withheld to cover the income tax due on vesting). The employee then chooses whether to hold the shares or sell them.
The standard vesting schedule for RSUs is four years with a one-year cliff - 25% vests after the first year, then monthly or quarterly vesting through year four. Variations include three-year schedules (more common in mature public companies), five-year schedules (some senior executive grants), and back-loaded schedules (smaller percentages early, larger percentages later - used to retain key talent). Refresh grants - additional RSU grants in years 2-4 - extend the retention horizon and maintain the unvested equity value that motivates continued employment.
Key Points: Restricted Stock Units (RSUs)
- Real shares delivered on vesting: Unlike phantom stock or appreciation rights, RSUs convert into actual share ownership at vesting.
- No exercise price: The employee receives the shares without needing to pay anything; tax is owed on the value at vesting.
- Standard 4-year vesting with 1-year cliff: 25% at year 1, then monthly through year 4 is the most common pattern.
- Refresh grants extend retention: Additional grants in subsequent years maintain unvested value and ongoing retention incentive.
- Tax at vesting, not at sale: RSUs are taxed as ordinary income on the value at vesting; subsequent sale produces capital gains or losses on the change in value after vesting.
How Restricted Stock Units (RSUs) Works in Treegarden
Restricted Stock Units (RSUs) in Treegarden
Treegarden’s offer letter module supports RSU grants with standard and custom vesting schedules, multi-currency value display, and clear differentiation between cash compensation and equity value. Total-compensation calculators help candidates evaluate the full economic value of an offer - including the present value of unvested RSU grants - against competing offers.
See how Treegarden handles Restricted Stock Units (RSUs) → Book a demo
Related HR Glossary Terms
Frequently Asked Questions About Restricted Stock Units (RSUs)
In the US, RSUs are taxed as ordinary income on the fair market value of the shares on the vesting date. The employer typically withholds shares to cover the federal income tax, FICA, and state income tax due on vesting. After vesting, the employee owns the remaining shares with a cost basis equal to the vesting-date fair market value; subsequent sale produces short-term capital gain or loss (if held less than a year after vesting) or long-term (if held more than a year). UK and other jurisdictions have similar but distinct treatments.
Unvested RSUs are forfeited on the last day of employment in essentially all standard plans. The vested portion - shares already converted to actual ownership before the departure date - is the employee’s property and unaffected by the departure. This forfeiture rule is the primary mechanism by which RSUs serve as a retention tool: the larger the unvested grant, the higher the cost of leaving.
Yes, though they are more complex in private companies because the shares delivered on vesting are not immediately liquid. Private-company RSUs typically include a ‘double-trigger’ vesting structure: the time-based vest happens on schedule, but the actual delivery of shares is contingent on a liquidity event (IPO or acquisition). This protects employees from owing income tax on illiquid shares they can’t sell to cover the tax.
Standard practice is to divide the total grant value by the vesting term to get an annualised equity value, then add to base salary for a directly comparable annual compensation figure. For a $400k RSU grant vesting over 4 years, the annualised equity value is $100k - so a $200k base + $100k annualised RSU offer is comparable to a $300k base offer with no equity. Risks to consider: share price volatility (the eventual realised value can be much higher or lower than the grant-date value), retention risk (changing companies forfeits unvested portion), and tax treatment differences.