RSUs (Restricted Stock Units)

RSUs (Restricted Stock Units)

Restricted Stock Units (RSUs) are a form of equity compensation that gives employees the right to receive company shares after certain conditions are met—typically a vesting period based on time or performance. Unlike stock options, RSUs don’t require the employee to purchase the shares. Once vested, the shares are granted outright and are considered taxable income.

Imagine you’re offered 1,000 RSUs as part of your compensation package at a growing tech company. The shares vest over four years, so each year 250 shares become yours. Once vested, the shares are yours to keep, sell (if the company is public or has a liquidity event), or hold for potential future growth. You didn’t pay anything upfront, but you’ll pay taxes on their value once they vest.

RSUs are often used by both startups and large public companies to attract and retain talent, offering employees a stake in the company’s success.

Key Features:

• No Purchase Required: Employees don’t buy RSUs—they’re granted and then delivered after they vest.
• Vesting Schedule: Shares vest over time or based on performance goals. Typical schedules include 3-5 years, often with a “cliff” in the first year.
• Taxable at Vesting: In Canada, RSUs are taxed as income when they vest, based on the fair market value of the shares at that time.
• Liquidity Depends on Company: For public companies, vested RSUs can often be sold immediately. For private companies, employees may need to wait for a liquidity event (like a sale or IPO).
  

RSUs in Canada:

• RSUs are a common part of compensation in tech and growth-stage companies operating in Canada.
• Canadian employees are taxed on the value of RSUs as employment income when the shares are delivered. Some companies may withhold shares to cover tax obligations.
• If you hold onto your shares after vesting and sell them later, you may pay capital gains tax on any additional increase in value.
  

Benefits:

• Offers employees ownership without requiring upfront investment
• Provides a clearer value than stock options, especially in public companies
• Encourages retention and long-term thinking through vesting schedules
• Potential for wealth building if the company grows in value
  

Considerations:

• Income tax is owed when shares vest, even if you don’t sell them
• Illiquidity can be a risk in private companies if there’s no secondary market or exit
• RSUs may lose value if the company’s stock price drops before you sell
• Unlike stock options, there’s no leverage—your upside is limited to the share price at vesting/sale

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