RSUs are a form of stock-based compensation that represents a promise to deliver a specific number of shares of the company’s stock in the future, subject to vesting requirements.

Key Characteristics

1. Vesting Period: RSUs are granted with a vesting period, during which the recipient must continue to work for the company to earn the underlying shares.
2. No Immediate Ownership: RSUs do not represent immediate ownership of company shares.
3. Taxation: RSUs are taxed as ordinary income when the underlying shares vest.
4. No Voting Rights: Recipients typically do not have voting rights until the underlying shares vest.
5. Transfer Restrictions: RSUs may have transfer restrictions until they vest.

How RSUs Work

1. Grant: The company grants RSUs to eligible recipients.
2. Vesting Schedule: A vesting schedule is established, outlining the number of shares that will vest over time.
3. Vesting Conditions: Vesting may be subject to performance conditions, service requirements, or other conditions.
4. Vesting: The recipient earns the underlying shares according to the vesting schedule.
5. Settlement: The company issues the underlying shares upon vesting.

Benefits of RSUs

1. Alignment with Company Goals: RSUs incentivize recipients to contribute to the company’s growth and success.
2. Tax Efficiency: RSUs can provide tax benefits compared to other forms of compensation.
3. Increased Retention: RSUs motivate recipients to remain with the company.
4. Flexibility: Companies can customize RSU plans to suit their needs.

Private Company Considerations

1. Limited Liquidity: RSUs may not be easily transferable or liquidatable.
2. Regulatory Compliance: Private companies must ensure compliance with relevant securities laws and regulations.
3. Valuation: Private companies may need to value RSUs for financial reporting purposes.

Examples of RSU Plans

1. Time-Based Vesting: Shares vest over a set period.
2. Performance-Based Vesting: Shares vest based on meeting specific performance targets.
3. Cliff Vesting: Shares vest after a specified period (cliff).
4. Double Trigger Vesting: Shares vest upon a change in control or termination.

Consult with your company’s HR or legal department, or a financial advisor to understand the specifics of RSUs in your private company.