Restricted Stock Units

Many tech companies don’t pay their employees with salary alone. They also promise them shares in the company itself. Such a share is called a stock and makes its holder a co-owner of the company. Restricted Stock Units are a written promise of exactly such shares in the future. The word “restricted” means limited: the employee only receives the shares after a defined waiting period. If they leave the company beforehand, the still-outstanding part of the promise is forfeited.

Why tech giants pay this way

For companies, RSUs are a way to pay high salaries without spending money immediately. Instead of cash, the company issues something it can produce itself: new shares in itself. Young companies in particular often have plenty of ideas but little cash on hand. For them, this is the only way to compete with large corporations for good talent.

The second purpose is retention. Anyone who quits after two years often leaves half of their promised package on the table. In the industry, this is called “golden handcuffs.” A developer at a major AI lab can have a package worth several hundred thousand euros, paid out over four years.

Third, RSUs align the interests of employees and owners. If the company’s share price rises, the package becomes more valuable. If it falls, it shrinks. That’s exactly why RSUs regularly show up in quarterly reports: they don’t cost the company any cash, but they do dilute the stake of all existing owners.

Vesting: the schedule behind the promise

The schedule by which the shares are released is called vesting. A very common pattern is four years with a one-year lock-up period at the start, known as the cliff. Anyone who leaves within the first year gets nothing at all. Anyone who makes it through the first year receives a quarter of the total all at once. The rest follows afterward in small increments, often quarterly or monthly.

On the day a portion is released, the promise converts into actual shares. At exactly that moment, the value counts as income and is taxed. This is a common misconception: many people believe taxes are only due upon sale. In reality, employers often withhold a portion of the shares directly to cover the tax.

It’s important to distinguish this from stock options. An option is merely the right to buy shares at a fixed price. If the share price is below that, the option is worthless. An RSU, by contrast, is almost always worth something, as long as the stock has any price at all. In exchange, the potential upside with options is greater if things go well.

RSUs in job postings and company reports

Anyone reading job postings from Google, Nvidia, or Microsoft will almost always find a figure for compensation in shares. The stated annual salary then consists only partly of cash. For experienced AI professionals, the equity portion can even exceed the base salary. Reports of record salaries in the AI industry therefore usually refer to such total packages, not the monthly paycheck.

In financial news, the term appears under the heading “stock-based compensation.” This is the line item companies use to report equity compensation on their balance sheets. At some tech companies, it amounts to billions of euros per year. Analysts regularly debate whether this line item should count as a real cost or not.

One point is especially important for employees: at companies that are not yet publicly traded, vested shares often can’t be sold at all. You own them, but you can’t turn them into cash. That’s why figures on the value of an RSU package at startups are always estimates, not guarantees.