A Comparison of Employee Stock Options vs. Restricted Stock Units

Employee stock options and restricted stock units are collectively discussed under the umbrella of equity compensation. As equity compensation, they have some similarities. Yet they also have a lot of differences. It is these differences that are reviewed and highlighted in this article.

Restricted stock units and employee stock options are commonly-awarded types of equity compensation that you may receive as part of your overall pay from your employer. While both restricted stock units and stock options are forms of equity, they each have particular features and are treated very differently from a tax perspective. Restricted stock units or awards (RSUs) typically...

A new year can be an opportune time to review your equity compensation package. Not only does this give you a clean slate to work with, but it also affords you the most time to plan and implement your strategy for the fresh calendar year ahead. When it comes to annual planning for your equity compensation, you’ll want to consider a number of items. To get started, you might want to ask (and get answers...

You might not give much thought to the equity compensation you receive throughout the year (until you’re forced to take action with it). But even if you do have a long-term plan in mind, it’s smart to pause periodically and review the overall strategy. The end of the year is a prime opportunity for this review, and also provides a chance to check-in and recall any decisions made during the calendar year. Not only will...

Incentive stock options (ISOs) are a form of compensation distributed by a company to their employees. Typically, companies use incentive stock options as a vehicle to retain top employees, reward specific milestones or successes or as an incentive when hiring new employees. ISOs can be a lucrative long-term compensation benefit, particularly if you work for a company that is growing quickly and has a rising stock price. Because they may be highly valuable, incentive stock...

If you have employee stock options, you’ve likely spent time considering how and when to turn the value of those options into cash proceeds you can actually use. To turn stock employee stock options into cash, you have to exercise and sell them.  When you exercise, you are buying shares of company stock at the exercise price of the employee stock option. Buying shares of stock means that you still need to pay for them...

A stock swap can be a great strategy to use if you have employee stock options you’d like to exercise and hold. It allows you to use the fair market value (FMV) of company stock you already own to pay for the exercise cost of newly acquired employee stock option shares. Shares you own that can be used for a stock swap can include those you’ve purchased on the open market, shares acquired from vested...

If you are on the receiving end of employee stock options, you might want to understand the concept of leverage, as it may have a meaningful impact on the future value of your stock. As it relates to employee stock options, leverage is illustrated by the percentage change you see in the total value of your employee stock options as a result of a change in the value of the underlying stock price itself. If...

If you done any research on equity compensation and employee stock options, you’ve likely come across terms and phrases like “concentration risk” and “too many eggs in one basket.” You may have also read up on stories that detail how a declining stock price wiped out someone’s net worth before they could exercise, sell, and realize the value that used to be in their employee stock options. As a result, you might feel wary about...

If you have employee stock options, you’ve probably spent time considering the absolute best time to exercise those options — and from there, whether you should sell or hold your shares. Answering the question of “when” — when to exercise, and when to sell — is wrapped in complexity. With so many liquidation strategies at your disposal and so many personal needs to consider (such as what kind of stock options you own and what...