RSU

Your joined a public company, they offer you RSU. Contract says you get $60000 dollars worth of RSUs vest over 3 years (one year cliff, vest monthly after first year). What does this mean?

This means you will get certain number of RSUs on the grant date. How many shares you’ll get is based on the value at grant date. And you’ll receive these shares in the 2nd year, then continue receiving every month.

Grant date

On the grant date, it will decide how many shares you get. Based on the current value of your company’s stock. Let's say it is $100 per share. That means, $60000 / $100 = 600.

You will get 600 shares over your total vesting period. After this point of time, that $60000 means nothing. Grant date was only for determining number of shares you will receive.

Vesting

Let's say vesting in 3 years. First vesting date is after 1 year. Then after that, vest monthly.

After your first year, a third (1/3) of your RSUs vest. That means, of your 600 shares, 200 will vest at your first vesting date.

On your first vesting date, your company grew 2x with your amazing work, value of each share is now at $200. So, your 200 shares that vest on this date is worth $200 x 200 = $40,000.

You will receive $40,000 taxable earnings. Yes it is taxed. Similar to bonus. But it is not cash. It is amount of shares. You can choose to

  1. Sell all shares immediately to get cash
  2. Sell enough to cover taxes and receive the remaining as Shares.

This is how RSU works. Hope this helps.