RSUs vs Stock Options With workers across the globe on the move it’s imperative that employers are using every tool available, not only to ensure they have the right people working for them, but that they are holding onto that key talent. The Great Resignation and the Great Reshuffle have shone a spotlight on the number of employees who are voting with their feet and seeking change meaning, for employers, now could actually be the perfect opportunity to look at their existing employee remuneration offerings and to maybe hit refresh.
Research regularly shows that modern workers value companies who embody employee ownership values, where feeling rewarded and appreciated is a priority. Employee ownership reward schemes give staff the ability to become personally invested in the performance of the company, which in turn breeds loyalty and dedication.
Employers and founders who noticed the positive link between employees holding an equity stake in the business and improved workplace performance have been implementing and adapting their compensation strategies accordingly, to guarantee they have the right workers onside, the exact type of people who are going to drive them towards success.
There are a variety of programs available to choose from when it comes to rewarding and incentivizing employees through equity compensation, two of which are Restricted Stock Units (RSU) and Stock Options.
What are they? Restricted Stock Units (RSU) vs Stock Options
Stock Options were once the employee reward scheme of choice however Restricted Stock Units (RSU) have emerged as an increasingly popular form of equity compensation in recent years in both established companies and startups.
RSUs grant the participant employee company shares if they achieve certain performance goals or complete a set tenure with the employer, whereas with Stock Options the company is giving an employee the right to purchase company shares, at a pre-determined price, on a set future date.
In short RSU is dependent on the performance of the staff member themselves whereas for Stock Options the value is dependent on the company’s share price.
Regardless of whether you choose Restricted Stock Units, Stock Options or some other form of employee equity awards scheme the benefits are that they encourage retention and loyalty, performance is improved and employees are more engaged. How you determine which works best for you, your company and your staff will of course be dependent on a range of factors and that’s why it’s important to speak to the experts. At Global Shares we help companies every day to plan their perfect employee compensation strategy. Employee Ownership, Simplified – it’s what we do.
At a glance: Key differences between RSU and Stock Options
While there are some similarities between RSU and Stock Options it’s important to be aware there are very specific differences too, such as how the employee receives the compensation, how they vest and taxation.
With an RSU the employee is granted the actual stock without having to pay anything, whereas with Stock Options they have the opportunity to purchase company shares with a view to selling them at a later date.
RSU Stock Options
Stock Stock Options
Set vesting schedule or at benchmarks Set vesting schedule
Shares issued following vesting Shares owned upon exercising
Voting rights following vesting No voting rights until exercising
No payment required from employees Employees must pay at strike price on exercise date
No purchase cost, sell high Buy low, sell high
Taxed when vested Taxed when exercised or sold
Popular with late-stage startups and public companies Popular with early or mid-stage startups