What Is a Restricted Stock Unit (RSU)?
A restricted stock unit is a grant of company shares that you receive only after satisfying vesting conditions, typically staying employed through scheduled vest dates. Unlike a stock option, an RSU has no strike price: when it vests, you simply receive shares worth whatever the stock trades at that day.
That structure means RSUs almost always retain some value as long as the stock price is above zero, which is why public companies favor them over options. A grant of 400 RSUs vesting while the stock trades at $150 delivers $60,000 of stock, whether the price rose or fell since the grant.
How RSUs Are Taxed
RSU value is taxed as ordinary income at vest, exactly like a cash bonus, and employers typically withhold by selling or retaining a portion of the shares. If 100 shares vest at $150, you recognize $15,000 of income, and a 22% default federal withholding would consume 22 of those shares.
Withholding is a common trap for high earners: the default 22% rate is often below your true marginal rate of 32% to 37%, leaving a surprise bill at tax time. After vest, the shares have a cost basis equal to the vest-date price, and any further movement is a capital gain or loss when you sell.
Sell or Hold After Vesting?
Because vested RSUs are taxed regardless of whether you sell, holding them is economically identical to receiving a cash bonus and immediately buying company stock with it. Framed that way, most people would not do it, which is why a common default is to sell at vest and redeploy into a diversified portfolio.
Holding concentrates risk on the same employer that already pays your salary and bonus. A practical rule is to keep company stock under roughly 10% of your investable assets and sell down anything above that on each vest date.
RSUs in Banking and Tech Compensation
In investment banking, a growing slice of the annual bonus is often paid as deferred stock that vests over roughly three years, while tech companies typically grant RSUs upfront on four-year schedules with annual refreshers. Either way, unvested equity becomes a real factor in any decision to switch firms.
When negotiating an exit, quantify your unvested RSUs at current prices and ask the new employer for a make-whole grant or sign-on bonus. Firms replace forfeited equity routinely, but only for candidates who bring the numbers.
