NextGen Investing: Understanding restricted stock units

With job openings at an all-time high, there is intense competition for available workers. One consequence of this booming job market is employees — especially millennials — are making themselves very available by quitting in large numbers. In response, companies are using financial incentives to retain their ever-more-fickle employees.

One of the incentives public companies use is restricted stock units, or RSUs. RSUs are a contract to award workers a specified number of shares of company stock after a vesting period, usually a year. At one time offered only to senior management, RSUs are increasingly being offered to younger workers the company wants to keep because they have surpassed performance benchmarks.

RSUs are a more desirable perk than the better-known stock options because options can expire worthless, leaving the recipient with an empty bag of promises. But each RSU is a full share of stock, so they are worth whatever the stock price is when they vest.

While younger workers love the idea of vested RSUs, the waiting is the hardest part. On financial social media sites popular with millennials, RSU recipients brag about their future bounty but complain they feel constrained because they don’t want to quit their job until the RSUs vest. The term they use to describe their situation: "golden handcuffs."

Be aware that in many cases, if you quit — even one day before the RSUs vest — you get nothing. Similarly, if you are fired before the RSUs vest, you also get nothing. But when your RSUs vest, you get to keep all the money, right? Well, not quite. The shares are considered income as soon as they vest, and you will have to pay income taxes on the full amount.