Fact-checked by Grok 2 weeks ago

Restricted stock

Restricted stock, also referred to as restricted stock awards (RSAs), is a form of equity compensation whereby a company grants an employee actual shares of its stock upon award, transferring immediate ownership but imposing transfer restrictions that prevent sale or transfer until vesting conditions—typically continued service over a multi-year period or attainment of performance goals—are fulfilled, with unvested shares subject to forfeiture upon early termination of employment.^[1]^[2] Unlike restricted stock units (RSUs), which represent a contingent promise of future shares without interim ownership, restricted stock provides recipients with shareholder rights such as dividend entitlements and voting privileges from the grant date onward, albeit with the risk of losing unvested holdings.^[3]^[2] Vesting mechanisms in restricted stock grants commonly employ time-based schedules, such as quarterly or annual cliffs over three to five years, or performance-based triggers tied to metrics like revenue growth or stock price thresholds, designed to foster alignment between employee efforts and sustained corporate value creation.^[4]^[5] For taxation, the fair market value of shares at vesting is generally treated as ordinary income to the recipient, with employers required to withhold taxes accordingly; however, employees may file an Internal Revenue Code Section 83(b) election within 30 days of grant to include the grant-date value in income instead, deferring recognition of subsequent appreciation to capital gains treatment upon sale, though this carries the risk of taxing potentially worthless shares if the company underperforms.^[3]^[6] This compensation vehicle gained prominence in the 1990s amid shifts toward broader employee ownership in U.S. firms, offering advantages over stock options by eliminating exercise prices and dilution risks from unexercised grants, while exposing recipients to downside market risk from the outset; it remains widely used in startups for founders and early hires due to its simplicity and motivational alignment without requiring upfront capital outlay.^[1]^[7]

Definition and Types

Restricted Stock Awards (RSAs)

Restricted stock awards (RSAs) grant recipients actual shares of company stock at the time of the award, providing immediate ownership subject to contractual restrictions on transfer and a substantial risk of forfeiture until specified vesting conditions are satisfied.^[8]^[9] These shares are typically issued directly to the recipient, often requiring a nominal purchase price such as the stock's par value, which is far below fair market value, particularly in early-stage companies where such awards incentivize key personnel.^[2]^[10] The restrictions on RSAs, imposed via agreement and often reflected in a legend on share certificates, prohibit sale, transfer, or other disposition until vesting criteria—such as continued employment over a set period or achievement of performance milestones—are met, aligning with securities regulations that treat unvested shares as restricted securities exempt from immediate registration requirements.^[9]^[11] This structure ensures recipients hold genuine equity from the grant date, including potential rights to dividends or voting, but exposes them to full market downside risk, as share value fluctuations affect the holdings directly.^[12]^[13] If vesting conditions fail, such as termination of employment prior to the restriction lapse, the unvested shares are typically forfeited back to the company, underscoring the award's role in tying recipient incentives to sustained contribution without upfront cash outlay equivalent to unrestricted stock.^[14]^[4] This forfeiture mechanism distinguishes RSAs by enforcing accountability through potential total loss of the granted equity, rather than mere deferral of delivery.^[10]^[2]

Restricted Stock Units (RSUs)

Restricted stock units (RSUs) constitute a contractual obligation by an employer to issue shares of company stock—or, in some cases, their cash equivalent—to an employee or service provider upon fulfillment of predetermined vesting conditions, such as continued service or performance milestones. At the grant date, no actual shares are transferred or owned by the recipient; RSUs merely represent an unfunded, unsecured promise of future delivery, distinguishing them from forms of compensation involving immediate share issuance.^[15]^[16] The structure of RSUs facilitates simpler financial reporting compared to stock options, contributing to their increased adoption after the Financial Accounting Standards Board (FASB) issued Statement No. 123(R) in 2004, which mandated expensing options based on grant-date fair value estimates—a requirement that highlighted the relative ease of valuing full-value awards like RSUs at vesting. Taxation occurs upon settlement, typically at vesting, when the fair market value of the delivered shares is treated as ordinary wage income subject to withholding, with no tax liability at grant provided the arrangement complies with deferred compensation rules under Internal Revenue Code sections 409A and 451.^[17]^[16]^[18] Until settlement, RSU holders lack shareholder rights, including voting privileges and direct dividend payments, as no underlying shares exist during the vesting period. To mitigate this, numerous RSU agreements incorporate dividend equivalents, which entitle recipients to cash payments equivalent to dividends that would have been received on the hypothetical shares, often accrued and disbursed at settlement.^[19]^[20] RSUs predominate in equity compensation at public technology firms and similar growth-oriented entities, where surveys indicate near-universal use of time-based RSUs among surveyed companies to deliver value without the valuation volatility inherent in options.^[21]^[22]

Historical Development

Origins in Securities Regulation

The Securities Act of 1933 established the foundational regulatory framework for restricted stock by requiring registration of securities offered or sold in public transactions to protect investors from fraud, while exempting certain private transactions under Section 4(a)(2).^[23] This exemption applied to issuances not involving a public offering, allowing private companies to transfer stock to key employees without the full registration process, provided the shares were restricted against immediate resale to maintain the private placement character and avoid circumvention of disclosure requirements.^[24] Such restrictions ensured that employee recipients could not freely distribute the securities publicly, aligning with the Act's aim to differentiate exempt compensatory transfers from broad market sales.^[23] The concept of restricted securities gained clarity with the adoption of SEC Rule 144 on April 15, 1972, which introduced a safe harbor for reselling restricted and control securities after specified holding periods—initially one to two years depending on reporting status—along with volume limitations and current information requirements.^[25] This rule addressed uncertainties in resale of privately issued employee stock, permitting public sales only after demonstrating no undue reliance on the original exemption, thus balancing liquidity for holders with investor protections against unregistered distributions.^[26] Tax treatment evolved in tandem through IRS guidance predating Section 83's 1969 enactment, with rulings and regulations permitting income deferral on substantially nonvested stock until restrictions lapsed. Treasury Regulation § 1.61-2(d)(5), issued in 1959, and Revenue Ruling 68-86 from 1968 allowed deferral where restrictions significantly depressed value or imposed a substantial risk of forfeiture, taxing only the spread between basis and value at lapse or sale.^[27] Judicial precedents, including Robert Lehman (17 T.C. 652, 1951) and Ira Hirsch (51 T.C. 121, 1968), reinforced this by deeming fair market value unascertainable at transfer due to resale or forfeiture constraints, enabling post-lapse appreciation to qualify for capital gains treatment.^[27] These developments collectively enabled restricted stock as a mechanism for unregistered employee incentives under securities exemptions.

Shift from Stock Options in the 2000s

The dot-com bust from 2000 to 2002 rendered many employee stock options granted during the late 1990s technology boom worthless, as share prices plummeted and failed to recover sufficiently for profitable exercise, prompting companies to reassess equity compensation vehicles for better retention efficacy.^[28] Concurrent corporate scandals, including Enron's 2001 collapse, underscored how stock options could incentivize executives to pursue short-term speculative gains at the expense of sustainable value creation, fueling calls for compensation structures that more reliably tied pay to long-term performance.^[29] In response, firms increasingly turned to restricted stock, which vests over time without an exercise price, thereby providing intrinsic value even in down markets and reducing the risk of demotivation from underwater options.^[30] A pivotal catalyst occurred in July 2003 when Microsoft announced it would discontinue stock option grants in favor of restricted stock units, citing employee dissatisfaction with unexercisable options amid post-bust volatility and anticipating stricter accounting treatment that would highlight options' costs.^[31] This move signaled a broader trend, as restricted stock offered predictable motivational upside without the binary risks of options, which required share price appreciation above the strike price for any payout. The Financial Accounting Standards Board (FASB) Statement No. 123(R), issued in December 2004 and effective for public companies' fiscal years beginning after June 15, 2005, further accelerated the transition by requiring fair-value expensing of stock options using models like Black-Scholes, often resulting in volatile and elevated compensation expenses that diluted reported earnings more than the grant-date fair value expensing typical for restricted stock.^[32]^[33] Empirical evidence from U.S. public companies documents this shift: post-FAS 123(R), stock option usage declined sharply while restricted stock grants rose, becoming the dominant equity compensation form by the late 2000s due to its favorable accounting predictability and alignment with retention goals absent exercise-price hurdles.^[34]^[35] For instance, among S&P 500 chief executives, the proportion of total compensation from stock options fell markedly from 2000 onward, with restricted stock comprising a growing share as companies prioritized full-value awards less susceptible to market swings.^[36] This evolution reflected causal pressures from both market realities—where options proved unreliable incentives—and regulatory changes mandating transparent cost recognition, ultimately favoring restricted stock for its stability in volatile environments.^[37]

Uses in Compensation

Employee Retention and Incentives

Restricted stock awards (RSAs) and restricted stock units (RSUs) serve as key tools for retaining non-executive employees in startups and established public companies by granting equity that vests contingent on continued service. These instruments are prevalent in technology firms and other high-growth sectors, where broad-based grants supplement base salaries to encourage long-term commitment amid competitive labor markets. Vesting schedules typically span 3 to 4 years, frequently incorporating a one-year cliff period after which a portion (often 25%) vests, followed by quarterly or monthly increments, creating a structural disincentive for early departure and thereby lowering associated recruitment and training costs estimated at 20-50% of annual salary per employee.^[38]^[39] Empirical analyses link such equity compensation to measurable reductions in voluntary turnover. Companies implementing broad-based employee ownership programs, encompassing restricted stock grants, report 8% lower annual employee turnover rates over three-year horizons compared to peers without such plans, as evidenced in longitudinal firm-level data. This retention effect stems from vesting mechanisms that impose forfeiture risks on unvested shares, empirically strongest around cliff dates where exit probabilities drop significantly due to the prospective loss of equity value.^[40]^[41] Beyond retention, restricted stock integrates into total compensation by linking rewards to firm outcomes, countering views of equity as merely "guaranteed" pay since realized value depends on stock performance and market conditions rather than fixed payouts. This alignment incentivizes non-executive contributions to operational efficiency and growth, with studies indicating enhanced unit performance in firms using deferred equity plans versus cash-only structures, as employees internalize ownership stakes that motivate sustained effort over short-term horizons.^[42]^[43]

Executive Alignment with Shareholders

Restricted stock grants align executive incentives with shareholder interests by exposing recipients to both the upside potential and downside risks of stock price movements from the date of award, thereby reducing moral hazard associated with asymmetric payoffs in stock options.^[44] Unlike options, which provide unlimited upside but limited downside (typically forfeiting only the opportunity if unexercisable), restricted stock imposes full economic consequences of poor performance on executives, as unvested shares can lose substantial value or be forfeited, mirroring shareholders' principal loss.^[45] This symmetry promotes prudent risk management and long-term value creation over short-term gambles, consistent with agency theory principles that tie compensation to observable firm outcomes to minimize divergence between managerial and owner objectives.^[46] Following the Sarbanes-Oxley Act of 2002, which heightened scrutiny on corporate governance, the prevalence of restricted stock and performance-based variants in S&P 500 CEO equity compensation rose markedly, surpassing stock options as the dominant form by the 2010s.^[47] By 2025, among the first 100 S&P 500 proxy filers, performance stock units— a restricted stock derivative—accounted for 60% of long-term incentives on average, with time-based restricted stock units at 24%, totaling over 80% of equity grants compared to 16% for options.^[48] This shift reflects boards' response to option-related issues like backdating scandals and FASB's 2004 requirement to expense options at fair value, favoring restricted stock's straightforward alignment with total shareholder return (TSR).^[49] Empirical evidence indicates that higher proportions of restricted stock in CEO pay correlate with enhanced firm performance metrics, including TSR, particularly for long-term shareholders, as executives prioritize sustainable growth over volatility-inducing strategies.^[50] Studies confirm that restricted stock incentives lower agency costs more effectively than cash or options, fostering decisions that maximize shareholder value through direct ownership-like stakes rather than leveraged bets.^[46] Market-driven adoption of these grants, rather than regulatory mandates alone, underscores their role in disciplining executive behavior, with boards calibrating awards to reflect competitive talent markets and verifiable value creation.^[51]

Vesting and Forfeiture Rules

Time-Based Vesting Schedules

Time-based vesting schedules for restricted stock awards and units require recipients to remain employed or provide continuous service for specified periods before gaining full ownership rights, thereby promoting employee retention without tying vesting to company performance outcomes. These schedules typically span three to five years, with a common structure involving a four-year term where 25% of the shares vest after an initial one-year cliff period, followed by the remaining shares vesting in equal quarterly or monthly increments.^[39]^[52] This cliff mechanism discourages early departures by withholding any vesting until the first anniversary, after which gradual "ratchet" vesting—such as 1/48th quarterly—ensures ongoing commitment and mitigates short-term opportunism.^[39] In acquisition scenarios, double-trigger provisions often supplement standard time-based schedules, requiring both the passage of time (e.g., partial service vesting) and a liquidity event like a change of control for full acceleration.^[53]^[54] This protects employees from abrupt terminations post-merger by preventing single-event vesting that might otherwise expose unvested portions to forfeiture, a practice prevalent in private company grants to balance retention with exit incentives.^[55] Unvested shares under time-based schedules are generally forfeited upon voluntary resignation or termination for cause, reverting to the issuing company to reinforce the retention intent.^[56]^[57] Some plans include limited acceleration for "good leaver" scenarios, such as involuntary termination without cause, allowing pro-rata vesting up to the departure date, though such clauses vary by agreement and are not universal.^[57] Failure to meet the service condition thus results in permanent loss of those shares, underscoring the schedule's role in enforcing long-term alignment.^[58]

Performance-Based Conditions

Performance-based vesting conditions for restricted stock awards or units require recipients to satisfy predefined, measurable targets before shares vest, distinguishing them from purely time-based schedules by linking ownership to verifiable company outcomes. These conditions typically incorporate financial or market metrics such as total shareholder return (TSR), earnings before interest, taxes, depreciation, and amortization (EBITDA), or revenue growth, evaluated over multi-year periods to align incentives with sustained value creation.^[4]^[59]^[60] Relative TSR, which compares a company's stock price appreciation plus dividends against a peer index, is among the most prevalent metrics, used in over 50% of equity grants to chief executives in large U.S. firms as of 2017, often measured over three-year cycles to mitigate short-term volatility and gaming through internal manipulations.^[61]^[59] Internal financial targets like EBITDA or revenue thresholds, spanning 3-5 years, provide alternatives but demand rigorous peer-relative benchmarks to ensure realism, as absolute goals can incentivize excessive risk-taking or accounting adjustments absent external validation. Vesting scales commonly range from 0% for failing minimum hurdles to 200% for exceeding thresholds, scaling linearly or in tiers based on achievement levels, thereby enforcing accountability through potential forfeiture.^[22]^[62]^[63] To counter risks of erroneous payouts, performance-based awards incorporate clawback provisions mandated by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as implemented by SEC rules finalized on October 26, 2022, requiring recovery of incentive compensation—including vested performance shares—received by executives during the three fiscal years preceding a material financial restatement due to misconduct or error, without proof of individual fault.^[64]^[65] Market-oriented metrics like TSR enhance verifiability by relying on observable stock performance, reducing susceptibility to discretionary adjustments compared to non-market financial goals, where causal links to executive actions may weaken amid opportunities for earnings manipulation.^[66]^[67]

Tax Treatment

United States Federal Taxes

Under Section 83 of the Internal Revenue Code, restricted stock transferred in connection with services is generally taxed as ordinary compensation income when it becomes substantially vested, meaning the lapse of any substantial risk of forfeiture, such as through vesting conditions.^[68]^[69] The amount included equals the fair market value (FMV) of the shares at vesting, less any amount paid by the recipient.^[16] For restricted stock awards (RSAs), where actual shares are issued at grant subject to restrictions, recipients may file a Section 83(b) election within 30 days of grant to include the FMV (net of purchase price) in income at grant rather than vesting.^[70] This accelerates ordinary income recognition but allows post-grant appreciation to qualify for preferential capital gains rates upon sale, beneficial if shares appreciate significantly, though it risks overpaying taxes if shares are forfeited or decline in value before vesting.^[71]^[72] Without the election, taxation at vesting captures any interim appreciation as ordinary income.^[13] Restricted stock units (RSUs), which promise future delivery of shares or equivalent value rather than granting immediate ownership, are taxed as ordinary income at settlement—typically upon vesting—based on the FMV of delivered shares; Section 83(b) elections do not apply, as RSUs lack transferable property rights at grant.^[16]^[6] Employers must withhold federal income taxes (often at supplemental rates of 22% or 37% for amounts over $1 million), FICA (up to the wage base), and Medicare taxes (including additional 0.9% for high earners) on the recognized income from both RSAs and RSUs.^[16]^[73] After inclusion in income, the recipient's tax basis equals the recognized amount, with subsequent sales generating capital gains or losses; for default RSA vesting or RSUs, the long-term holding period begins at delivery, while an 83(b) election for RSAs starts it at grant.^[8] Unlike incentive stock options (ISOs), which create an alternative minimum tax (AMT) adjustment equal to the bargain element (FMV minus exercise price) at exercise and impose disqualifying disposition rules to preserve preferential treatment, restricted stock under Section 83 triggers no such AMT preference or holding requirements beyond standard capital gains rules, as the income is recognized directly in both regular and AMT computations.^[74]^[72] The Tax Cuts and Jobs Act of 2017 did not alter Section 83's core employee taxation but repealed the performance-based compensation exception under Section 162(m), limiting employer deductions to $1 million annually for certain executives (generally CEOs and CFOs of public companies post-2017), including amounts from restricted stock vestings exceeding that threshold, regardless of performance conditions.^[75] TCJA also added Section 83(i), permitting qualified employees of eligible private corporations to defer income recognition on certain stock options or RSUs for up to five years if elected timely, though eligibility requires the corporation to meet liquidity and holding period criteria and excludes officers and large shareholders.^[75]^[76]

International Tax Variations

In the United Kingdom, the fair market value of restricted stock units (RSUs) at vesting is typically taxed as employment income, subject to income tax rates up to 45% and employee National Insurance contributions at 2% for higher earners, with employers required to operate Pay As You Earn (PAYE) withholding.^[77] While Enterprise Management Incentive (EMI) schemes offer tax deferral and relief on options for qualifying smaller companies—exempting income tax and National Insurance on exercise if conditions are met—RSUs generally do not qualify for such advantages and follow standard income taxation without deferral.^[78] This contrasts with U.S. treatment by imposing immediate local withholding obligations on employers, complicating administration for multinational firms granting U.S.-parent equity to UK employees. In France, taxation of restricted stock awards (often termed actions gratuites) includes income tax on the gain at acquisition or vesting, plus substantial social charges; for qualified plans, employee social contributions apply at sale but can exceed 30% cumulatively when including employer portions, though recent reforms under the 2025 Finance Act introduce a 10% special contribution in lieu of traditional levies for certain management packages.^[79] ^[80] EU variations amplify this, with countries like Germany adding solidarity surcharges and social security contributions up to 20%, creating higher effective rates than U.S. federal ordinary income taxation alone.^[81] Canada and Australia align more closely with U.S. rules, taxing RSU value at vesting as ordinary employment income—up to 53% combined federal-provincial rates in Canada and 45% plus Medicare levy in Australia—but cross-border grants from U.S. issuers trigger sourcing disputes and mandatory local withholding, with Canada's Revenue Agency applying a "hybrid methodology" to allocate benefits based on service periods.^[82] ^[83] These jurisdictions also impose FATCA-like reporting for U.S. equity holdings, increasing compliance burdens.^[84] Multinational corporations encounter withholding challenges, as foreign subsidiaries often lack mechanisms to withhold U.S. taxes on parent-granted RSUs, risking penalties or underpayment; double taxation arises without effective foreign tax credits or treaty relief, as local income inclusion precedes U.S. recognition, exacerbating cash flow strains.^[85] ^[83] Persistent lack of international harmonization—evident in disparate vesting triggers and charge rates—forces tailored plan designs, heightening administrative costs and potentially disadvantaging non-U.S.-headquartered firms in competing for global talent against U.S.-centric entities with standardized domestic frameworks.^[84]

Valuation and Accounting

Determining Fair Value

The grant-date fair value of time-vested restricted stock awards (RSAs) and restricted stock units (RSUs) is determined as the closing market price of the underlying shares on the date of grant, reflecting the economic cost to the issuer assuming service conditions are met.^[86]^[87] This approach aligns with the fair value measurement objective under ASC 718, which prioritizes the price that would be received in an orderly transaction between market participants.^[88] Post-vesting restrictions, if present, require a discount to fair value based on the probability and impact of those restrictions materializing, though such cases are uncommon for standard awards.^[86] To derive the total expected compensation expense, issuers estimate forfeiture rates derived from historical employee turnover and vesting data, typically adjusting the number of units anticipated to vest rather than altering the per-unit fair value.^[89]^[87] These rates, often informed by company-specific empirical patterns such as annual attrition of 5-15%, enable a probabilistic adjustment that reflects actual vesting outcomes over the requisite service period.^[90] Market conditions, including dividend yields for RSAs (which may entitle holders to payments during restrictions) versus RSUs (which generally do not), are factored into the valuation where they influence expected returns.^[91] Performance-based restricted stock, contingent on metrics like earnings targets or total shareholder return, requires simulation-based models such as Monte Carlo or lattice (binomial) approaches to capture the non-linear probabilities of vesting outcomes.^[92]^[93] Monte Carlo simulations generate thousands of stock price paths using inputs like historical volatility (computed from daily returns over relevant periods), risk-free interest rates, and correlations for relative performance peers, yielding an expected payout probability-weighted fair value.^[94] Lattice models similarly discretize time into steps to model vesting scenarios, accommodating early exercise behaviors or dynamic targets while relying on empirical volatility derived from the issuer's past price fluctuations.^[93] These methods provide greater causal accuracy than closed-form approximations like Black-Scholes, which assume constant parameters unsuitable for path-dependent conditions. Compliance with IRS Section 409A for arrangements potentially classified as nonqualified deferred compensation incorporates safe harbor valuation methods under Treas. Reg. § 1.409A-1(b)(5), such as independent appraisals meeting IRC § 401(a)(28)(C) standards or prospective formula-based valuations tied to recent arm's-length transactions.^[95] These ensure the grant-date value avoids penalties by establishing a defensible fair market value, particularly for private issuers where liquidity restrictions amplify forfeiture risks until vesting lifts the substantial risk of forfeiture.^[95] Empirical inputs, including recent trading data or appraised discounts for lack of marketability, underpin these valuations to align with observable market evidence.^[96]

Financial Reporting Under ASC 718

Under ASC 718, issuers recognize compensation expense for restricted stock awards based on the grant-date fair value of the underlying shares, attributed over the requisite service period, typically the vesting period.^[88] For time-based restricted stock units (RSUs), this involves straight-line amortization of the total fair value, calculated as the number of shares expected to vest multiplied by the grant-date stock price, with adjustments for actual forfeitures either through ongoing estimates or recognition upon occurrence as permitted after the 2016 ASU update.^[97]^[98] The cumulative expense reflects the true economic transfer of value without cash outlay, reducing reported net income and retained earnings over time, though it does not affect cash flows from operations.^[99] The adoption of SFAS 123R in 2004, later codified in ASC 718, shifted stock-based compensation from pro forma disclosures to mandatory income statement recognition, particularly impacting firms reliant on options but also standardizing restricted stock accounting by emphasizing fair value measurement.^[32] This change revealed understated prior expenses for equity awards in technology sectors, where stock-based pay is prevalent, with studies indicating amplified effects on reported compensation costs due to high option usage before the shift to restricted stock and other forms.^[100] For restricted stock specifically, the framework ensures the balance sheet indirectly bears the cost through equity dilution upon vesting, promoting transparency in executive alignment without altering immediate liquidity.^[86] In earnings per share (EPS) calculations under ASC 260, unvested restricted shares and RSUs are treated as potential dilutive securities using the treasury stock method, assuming issuance at period-end with any hypothetical proceeds (none for RSUs) used to repurchase shares at the average market price.^[101] Since RSUs typically involve no exercise price, this results in a net increase in shares outstanding for diluted EPS if the average price exceeds zero, signaling long-term shareholder commitment via non-cash incentives while accurately reflecting potential future dilution.^[87] This method avoids overstating current EPS but highlights the economic reality of equity grants as a form of deferred compensation.^[102]

Advantages

Benefits for Recipients

Restricted stock awards (RSAs) and restricted stock units (RSUs) deliver value to recipients through the guaranteed receipt of shares upon satisfying vesting conditions, contrasting with stock options that carry the risk of expiring worthless if the share price declines below the exercise price.^[103] This structure ensures employees obtain equity worth the prevailing market price at vesting, providing downside protection absent in options and enabling participation in company value creation without upfront purchase requirements.^[104] Recipients capture stock price appreciation over the vesting horizon, fostering wealth accumulation in growing firms; for instance, during 2010–2020, the Nasdaq-100 Index, comprising many equity-compensated technology companies, generated an annualized total return of approximately 17.6%, allowing vested RS holders to realize compounded gains aligned with such market performance.^[105] This long-term upside often exceeds liquidity constraints by tying compensation to sustained company success, with historical data indicating RSUs as a reliable vehicle for employee wealth building in high-growth sectors.^[103] RSUs frequently incorporate dividend equivalents, crediting recipients with cash or additional units mirroring dividends paid on common shares during the vesting period, thereby enhancing total returns without diluting the core award.^[106] RSAs, by contrast, confer voting rights from the grant date, enabling recipients to influence corporate governance and reinforcing psychological ownership that correlates with improved performance incentives.^[107] Tax strategies further amplify benefits for RSA holders via the Section 83(b) election, which permits inclusion of the grant-date fair market value—often nominal in early-stage firms—in ordinary income, shifting subsequent appreciation to preferential long-term capital gains rates upon sale.^[108] This election, filed within 30 days of grant, has enabled substantial savings for recipients in appreciating stocks, as post-grant gains avoid higher ordinary income taxation at vesting.^[109]

Advantages for Issuing Companies

Issuing restricted stock enables companies to provide competitive compensation to executives and key employees without requiring an immediate cash outlay, thereby conserving liquidity for core business operations and investments.^[110] The related compensation expense is recognized ratably over the vesting period under applicable accounting standards, aligning reported costs with the duration of employee service and the realization of associated productivity benefits.^[9] This form of equity compensation promotes employee retention by conditioning full ownership on continued service, reducing recruitment and training expenses tied to high turnover in talent-intensive industries.^[111] Unlike stock options, restricted stock delivers intrinsic value at vesting regardless of moderate share price fluctuations, fostering sustained motivation and ownership mindset that empirical studies link to enhanced firm performance; for instance, companies with elevated employee stock ownership levels—often achieved through restricted stock grants—exhibit about 5% higher year-ahead return on invested capital relative to peers, attributable to improved alignment and long-term focus.^[40] ^[112] Restricted stock mitigates agency conflicts more effectively than cash bonuses, which decouple pay from firm outcomes, or options, which can incentivize excessive risk-taking due to limited downside exposure; by granting shares subject to forfeiture, it imposes symmetric risk on recipients akin to shareholders, encouraging decisions that prioritize enduring value creation over short-term gains.^[112] It also avoids vulnerabilities to manipulation seen in pre-2006 stock option practices, such as backdating grant dates to lower exercise prices—a scandal implicating over 200 firms and resulting in more than $10 billion in market value losses—since restricted stock's fair market value is fixed at the unambiguous grant date without adjustable strike prices.^[113] ^[114] To manage dilution, companies typically secure shareholder approval for equity incentive plans under exchange rules, authorizing share pools equivalent to 10-15% of outstanding common stock, which constrains overall issuance while ensuring compensation ties to performance metrics validated through advisory say-on-pay votes mandated by the Dodd-Frank Act since 2011.^[115] ^[116] This framework limits ownership dilution to levels deemed acceptable by investors, often lower than equivalent option grants due to restricted stock's higher certainty of value delivery, thereby preserving per-share earnings and voting power for existing holders.^[117]

Criticisms and Limitations

Agency Problems and Risk Aversion

Restricted stock grants, intended to align executive interests with shareholders through equity exposure, can inadvertently amplify agency problems by heightening CEO risk aversion due to unhedged downside potential. Unlike stock options, which offer asymmetric payoffs that incentivize risk-taking via convexity, restricted stock subjects CEOs to full linear exposure to stock price declines without the option to abandon underwater positions, potentially leading to conservative decision-making that prioritizes short-term stability over value-creating risks. A 2021 study analyzing S&P 1500 firms found that CEOs receiving significant restricted stock grants exhibited reduced risk-taking behaviors, as the perceived downside risk from vesting shares discourages bold strategies, with regulatory focus theory explaining variations in this effect based on CEO promotion versus prevention orientations.^[118]^[119] Empirical evidence links this risk aversion to observable outcomes, such as diminished investment in innovation. Restricted stock's linear structure fails to efficiently motivate risk-averse CEOs toward high-variance projects like R&D, which carry uncertain payoffs, resulting in lower corporate innovation outputs compared to option-heavy compensation mixes. For instance, research on CEO equity incentives demonstrates that restricted stock correlates with subdued pursuit of risky, value-enhancing activities, exacerbating agency frictions where managers avoid downside to protect personal wealth tied to firm stock.^[120]^[121] In bull markets, restricted stock can generate windfall gains for executives, rewarding broad market appreciation over firm-specific skill or effort, which undermines the alignment rationale and fuels perceptions of excessive compensation. These gains, amplified by vesting during upward trends, often exceed what performance-based metrics would justify, as stock prices reflect macroeconomic luck rather than managerial causality. While proponents defend such outcomes as market-efficient reflections of talent scarcity, critics highlight resultant pay disparities; however, causal analyses reveal mixed long-term shareholder value, with evidence indicating that over-reliance on restricted stock contributes to suboptimal risk calibration without commensurate innovation benefits.^[122]^[123]

Dilution and Shareholder Dilution Effects

Issuance of restricted stock leads to shareholder dilution by expanding the equity base upon vesting, proportionally reducing existing owners' claims on earnings and assets, which manifests in lower earnings per share (EPS) absent offsetting growth. In high-growth companies, equity compensation grants, encompassing restricted stock, commonly dilute ownership by 1% to 5% annually, a figure partially counterbalanced by performance hurdles that condition vesting on metrics like total shareholder return or revenue targets, thereby forfeiting excess shares.^[124] Across the S&P 500, stock-based compensation has induced average annual dilution of roughly 1.5% to 2.5% over recent years; for example, in 2015, such plans generated 1.6% dilution that firms offset via buybacks, while medians reached 2.85% in 2022-2023 data.^[125] ^[126] Relative to stock options, restricted stock imposes greater upfront overhang since it allocates full-value shares from the authorized pool immediately upon grant—albeit unvested—creating predictable dilution pressure once conditions are met, in contrast to options' contingent dilution tied to exercise. Restricted stock mitigates certain option-related pitfalls, such as repricing dilutive grants for underwater strikes, which can amplify total overhang beyond initial estimates during market downturns.^[127] Shareholders ultimately absorb these costs, yet in efficient markets, the retention and incentive alignment from restricted stock foster causal improvements in firm performance that exceed dilutive impacts, as evidenced by sustained value creation post-grant in aligned compensation structures. Firms often pair grants with buybacks to neutralize EPS erosion, preserving per-share metrics; for instance, S&P 500 buyback yields have historically matched or exceeded equity compensation run rates, stabilizing ownership economics.^[127] ^[128] ^[125]

References

[1]
Stock Options, ESPPs and Other Individual Equity Compensation ...
With restricted stock awards, companies can choose whether to pay dividends, provide voting rights, or give the employee other benefits of being a shareholder ...
[2]
RSA vs RSU: Key Differences & Tax Treatments - Carta
Aug 19, 2022 · The two types of restricted stock equity awards—RSAs and RSUs—have differences when it comes to purchase cost, vesting, taxes, and terms upon ...
[3]
How Restricted Stock and Restricted Stock Units (RSUs) Are Taxed
RSUs differ from restricted stock in that shares cannot be delivered until vesting and forfeiture requirements are satisfied. In some cases, employees can ...What Are Restricted Stock Units? · How Is Restricted Stock Taxed? · Example
[4]
Restricted Stock, Performance Stock Awards and Taxes
Restricted Stock Unit (RSU) A company's commitment to give a specific number of shares of stock or cash equivalent to an employee at a future date, once vested ...
[5]
Equity Compensation: A Primer on Restricted Stock | Bragg Financial
Jul 16, 2024 · Restricted stock are company shares granted with vesting requirements. Once vested, the shares belong to you, and you can sell or hold them.
[6]
Restricted Stock and Performance Stock Taxes: A Guide
Restricted stock awards (RSAs) are taxable when they vest. Vesting means you no longer have the risk of forfeiting shares back to the company—they're yours ...
[7]
Restricted Stock or Stock Options - Which One is Right ... - SPZ Legal
Restricted stock is a direct grant of stock that vests upon grant, while stock options give the right to purchase stock at a specified price.<|separator|>
[8]
Restricted Stock Awards (RSA) Explained - Carta
Apr 24, 2024 · Restricted stock awards (RSA) are a type of equity compensation that grants employees and other service providers company stock with certain restrictions.Missing: mechanics | Show results with:mechanics
[9]
Unlocking the Power of Equity-Based Incentive Compensation
Sep 18, 2024 · Restricted stock is an award of stock that is subject to restrictions, meaning it is both non-transferable and subject to a substantial risk of ...
[10]
RSUs vs. RSAs: Pros and Cons, Taxes, Examples - SmartAsset
Jun 5, 2025 · RSAs involve the immediate issuance of company stock to the employee. However, the shares are subject to restrictions on transfer and may be ...
[11]
https://content.next.westlaw.com/practical-law/document/Ida3d2e2a129011e498db8b09b4f043e0/Restricted-Stock
[12]
What is restricted stock? RSUs and RSAs | Charles Schwab
Information about restricted stock units (RSUs) and awards (RSAs), including what they are, how they're taxed, and how to sell your shares.
[13]
Restricted Stock Awards (RSAs)
A restricted stock award is a grant of company stock in which the recipient's rights in the stock are restricted until the shares vest.
[14]
Frequently asked questions about restricted stock units - RSM US
A restricted stock unit is a promise to transfer shares (or make a cash payment) at some future date, typically after time or performance vesting requirements ...
[15]
EX-10.3 - SEC.gov
A Restricted Stock Unit (“RSU”) is an award to an eligible Employee, Consultant, or Director of the Company or any Parent or Subsidiary of the Company covering ...
[16]
[PDF] Equity (Stock) - Based Compensation Audit Technique Guide - IRS
Jun 25, 2024 · For stock options exercised or Restricted Stock Units (RSUs) settled after December 31, 2017, employees of startup companies can make an ...Missing: key features
[17]
Strategic Impacts of RSUs on Company Performance - MDPI
The introduction of RSUs gained momentum by changes in the US FAS 123(R) accounting rules in 2004. While existing stock options were not recognized as expenses ...
[18]
U.S. taxation of stock-based compensation received by nonresident ...
For Restricted Stock Units income, employers generally will file a Form W-2 for the nonresident alien and include an income on the Form W-2 at the Fair Market ...
[19]
Restricted Stock Unit (RSU) - Westlaw
The holder of a RSU is not the beneficial owner of the shares underlying the RSU award and therefore is not entitled to voting, dividend, or other stockholder ...
[20]
10.6 Income tax considerations — Employee's taxable income
Typically, employees do not receive voting or dividend rights on RSUs until delivery of the shares. However, an employer may choose to pay dividend equivalents ...
[21]
Technology Sector Equity Usage Practices - Compensia
Aug 29, 2018 · Ninety-nine percent (99%) of the companies surveyed grant time-based RSUs and 61% grant performance-based RSUs (both consistent with last year' ...
[22]
Technology Industry - Market Trends in Annual and Long-term ...
Feb 27, 2025 · Long-term performance plans are highly prevalent among all company size groups. Time-based restricted stock unit (RSU) plans are used for the ...
[23]
Securities Act of 1933 | Wex | US Law | LII / Legal Information Institute
The Securities Act of 1933 was Congress's opening shot in the war on securities fraud. Congress primarily targeted the issuers of securities.
[24]
Private Placements - Rule 506(b) - SEC.gov
Jun 13, 2024 · Section 4(a)(2) of the Securities Act exempts from registration transactions by an issuer not involving any public offering. To learn more ...
[25]
[PDF] Rule 144, the SEC, and Restricted Securities - Digital Commons @ DU
Rule 144 (effective April 15, 1972) is one of the most in- teresting and potentially far-reaching of the rules recently promulgated by the Securities and ...
[26]
Rule 144: Selling Restricted and Control Securities - SEC.gov
Jan 15, 2013 · Restricted securities are securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer.
[27]
[PDF] Internal Revenue Code Section 83 Restricted Stock Plans
Stock may be transferred to an employee subject to restrictions which do not qualify under section 83 for tax deferral." In such situations considerable ...Missing: 1950s 1960s
[28]
3 Must-Knows About Employee Stock Options - Morningstar
Oct 25, 2023 · But thanks to the combination of the dot-com bust and 2006 changes in the accounting rules that required companies to count stock options as ...
[29]
Opinion | Stock Option Madness - The Washington Post
Jan 29, 2002 · As the Enron scandal broadens, we may miss the forest for the trees. The multiplying investigations have created a massive whodunit.Missing: dot- preference restricted
[30]
Could Stock Options Make a Comeback?
Oct 6, 2025 · The primary driver of the change was the implementation of Accounting Standards Codification (ASC) Topic 718 (formerly known as FAS 123R), ...Missing: impact | Show results with:impact
[31]
Goodbye Stock Option, Hello Restricted Stock: Microsoft Leads the ...
Microsoft longer issues stock options to its employees. The decision appears to have been driven by several concerns, including disenchantment among workers.Missing: bust | Show results with:bust
[32]
Understanding FAS 123R: Importance, Advantages, and Impact on ...
FAS 123R fundamentally changed how companies compensate their employees, leading to a shift away from stock options to more complex compensation vehicles.
[33]
Summary of Statement No. 123 (revised 2004) - FASB
Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities to recognize ...Missing: trends | Show results with:trends
[34]
Another Consequence of SFAS 123R: Equity Compensation to ...
Sep 1, 2019 · This is important, as the literature cited above suggests that the usage of stock options declined, and that of restricted stock increased, post ...
[35]
The Move Away from Stock Options Continues – CLS Blue Sky Blog
... 2000s. ... The shift away from stock options and towards ... stock options and restricted stock prevalence declined by three to four percentage points.
[36]
Stock options, restricted stock, salary, or bonus? Managing CEO ...
Figure 1 shows the changes in percentage of stock options, restricted stock, and the total of the two over the total compensation for S&P 500 CEOs from 2000 to ...Missing: shift | Show results with:shift
[37]
Major Trends In Equity Compensation During The 21st Century
The tech boom of the 1990s democratized stock options. From the ashes of the post-dotcom downturn, restricted stock and RSUs rose up and started to gain ...
[38]
Create a perfect vesting schedule for your startup - Eqvista
Common vesting schedules span over 4 years with a one-year cliff. This means the shares start vesting only after the employee has worked in the company for one ...
[39]
Stock Vesting: Options, Vesting Periods, Schedules & Cliffs - Carta
Mar 9, 2024 · In this article, learn the basics of stock option vesting, how vesting works, vesting schedules, and why it matters for startup employees.Missing: loyalty | Show results with:loyalty
[40]
The Long-term Payoff of Employee Ownership - FCLTGlobal
Jun 28, 2024 · Evidence indicates that when employees have a stake in the company, turnover decreases. For example, a study sponsored by the UK Treasury ...
[41]
Causal Effects of Stock Options on Employee Retention
We find strong retention effects, especially at the first and the last vesting days. Increases in exit rates immediately after option vesting are on the order ...Missing: empirical restricted units RSUs
[42]
Sorting Effects of Broad-Based Equity Compensation
### Summary of Findings on Sorting and Retention Effects of Broad-Based Equity Compensation
[43]
Broad-Based Equity Compensation, Employee Turnover, and Unit ...
This study, which consists of two essays, examines the performance effects of a deferred equity plan on both individual employee and business unit outcomes.Missing: percentage | Show results with:percentage
[44]
Stock option pay versus restricted stock - jstor
Abstract. This study investigates how two stock-based incentives affect the risk-taking behavior of CEOs. We compare stock options and restricted stock in ...
[45]
[PDF] Did Executive Compensation Encourage Extreme Risk-taking in ...
The recent shift from options into restricted stock has the potential to reduce the risk taking incentives induced by options. However, current restricted stock ...
[46]
[PDF] Agency Costs, Executive Compensation, Bonding and Monitoring
Consistent with agency theory, it is found that cash compensation tends to increase agency conflict while restricted stock incentives and executive stock ...
[47]
S&P 500 CEO Compensation Increase Trends
Feb 11, 2020 · From 2009 to 2018, performance plan and restricted stock prevalence increased, and stock option prevalence decreased (Figure 2). The rise in ...Missing: SOX | Show results with:SOX
[48]
First 100 S&P 500 Proxy Filers in 2025 - Pearl Meyer
... awards, representing 60% of the total, on average, followed by time-based restricted stock units (RSUs) at 24% prevalence and stock options at 16% prevalence.Missing: 2020s SOX
[49]
S&P 500 CEO Compensation Trends | Pay Governance LLC
Jan 22, 2025 · We observed a slight uptick in the prevalence of time-based awards, with the gap between restricted stock unit (RSU) awards and stock options ...
[50]
[PDF] ceo pay and shareholder interest alignment
Research that appeared in the Academy of Management Journal shows that CEO pay is closely aligned with shareholder interests. Contrary to the rhetoric often ...Missing: executive | Show results with:executive
[51]
[PDF] Executive Compensation: A Survey of Theory and Evidence - ECGI
This paper reviews executive compensation, analyzing pay levels, drivers like shareholder value, rent extraction, and institutional factors, and their effects.
[52]
Restricted Stock Units and How They Work - Wealthspire Advisors
Jun 4, 2024 · RSUs come with a vesting schedule based upon a particular length of time, performance milestones, or both. Most RSUs only have a time-based ...Missing: loyalty | Show results with:loyalty
[53]
Single Trigger vs Double Trigger RSUs: Key Differences
Jan 31, 2025 · A double-trigger RSU requires two separate events for vesting. The first trigger is typically service-based, meaning the RSUs vest over time as the employee ...
[54]
[PDF] DOUBLE-TRIGGER RSUS AND THE QUESTION OF THE SEVEN ...
Typically, double-trigger RSUs will provide for service- based vesting over a period of three to four years, coupled with a requirement that a liquidity event ...
[55]
Part I: What are “Double-Vest” RSUs and Why Are They Making ...
Feb 16, 2023 · Double-Vest RSUs may be called “double trigger RSUs” colloquially, but because “double trigger” often can signify a severance benefit following ...
[56]
RSU Vesting Schedules: How & When Your Restricted Stock Units ...
Aug 7, 2025 · Some RSUs vest only when certain company goals are achieved, or require both a time-based condition and a company event (such as IPO or ...Rsu Vesting Schedules: How &... · Popular Rsu Vesting... · Rsu Vesting Example Scenario<|separator|>
[57]
RSU Vesting: A Guide to Understanding Restricted Stock Units
Mar 6, 2024 · Depending on company policy, unvested RSUs may be forfeited or continue vesting for a specified period post-termination. Mergers and ...
[58]
Frequently asked questions about restricted stock - RSM US
May 9, 2021 · Full ownership of the restricted stock is transferred at grant, but is subject to vesting conditions until the risk of forfeiture lapses. As ...
[59]
Maximizing Shareholder Value with TSR Metrics - Pay Governance
In the typical relative-TSR plan, TSR is measured at the end of a three-year performance cycle and based on the ending stock price versus the starting price, ...
[60]
[PDF] A Plethora of Performance Plans - Stock & Option Solutions
The second type is a performance-based metric which is the catch-all for almost any goal not related to or dependent on share price, including revenue, EBITDA, ...
[61]
What types of company goals are most commonly set for ...
Relative TSR is the most common performance metric. In 2017, 54.7% of the Equilar 500 companies used TSR in equity grants to CEOs. Return on capital (37.1 ...
[62]
Long-term incentive plan design among mid-cap industrials - WTW
Oct 6, 2025 · Most mid-cap industrials use two or three performance measures in their performance awards (Figure 1). TSR is the most common measure, typically ...<|separator|>
[63]
Performance-Based Equity Program Check-Up:Relative TSR Design ...
Feb 28, 2024 · Relative TSR PSUs are simply RSUs that vest based on a company's change in stock price, plus dividends (if applicable) paid, over a pre-established performance ...
[64]
Statement on Final Rules Regarding Clawbacks of Erroneously ...
Oct 26, 2022 · The Commission is considering adopting final rules mandated by the Dodd-Frank Act regarding clawbacks of erroneously awarded incentive-based compensation.Missing: provisions | Show results with:provisions<|separator|>
[65]
SEC Adopts Final Rule on “Clawback” Policies (November 14, 2022 ...
Nov 14, 2022 · The final rule requires issuers to “claw back” excess compensation for the three fiscal years before the determination of a restatement.
[66]
The value of TSR plans and other performance-based equity ...
Examples of market performance measures include changes in the value of common shares, total equity, or preferred shares. TSR plans target the future return on ...
[67]
[PDF] Designing Performance for Long-Term Value | Sustainalytics
TSR or relative TSR, while seen by some as the silver bullet performance metric for management, has a number of limitations as a measure in isolating and.
[68]
[PDF] Compensatory Final - IRS
The executive transfers the option or restricted stock for a deferred payment obligation payable by the related person to the executive. The obligation may ...
[69]
Publication 525 (2024), Taxable and Nontaxable Income - IRS
Dividends received on restricted stock. Stock you chose to include in your income. Sale of property not substantially vested. Inherited property not ...What's New · Reminders · Introduction<|separator|>
[70]
[PDF] Section 83(b) Election - IRS
When substantially nonvested property is transferred in connection with the performance of services, the person who performs the services may elect under IRC § ...
[71]
Section 83(b) considerations for employees receiving stock ...
Aug 14, 2025 · A section 83(b) election allows the employee to elect within 30 days of receiving the restricted stock to include the value of the stock in income currently.
[72]
Tax Implications for Stock-Based Compensation - Bloomberg Tax
Feb 21, 2024 · Instead, the employee is taxed when the shares vest unless they choose to defer receipt of the cash or shares.
[73]
Stock-based compensation: Tax forms and implications
Jan 4, 2024 · As shown above, there are several common categories of stock compensation. Restricted stock units grant the employee actual stock on the day it ...
[74]
Topic no. 427, Stock options | Internal Revenue Service
Sep 23, 2025 · If your employer grants you a statutory stock option, you generally don't include any amount in your gross income when you receive or exercise the option.<|control11|><|separator|>
[75]
[PDF] Guidance on the Application of Section 83(i) Notice 2018-97 I ... - IRS
Dec 7, 2018 · Section 83 generally provides for the federal income tax treatment of property transferred in connection with the performance of services.
[76]
Making the Sec. 83(i) election - The Tax Adviser
Nov 1, 2021 · Sec. 83(i) allows a qualified employee to defer income inclusion from the exercise of a restricted stock unit or option of the qualified ...
[77]
RSU Tax UK and Self-Assessment: Tech Employee's Guide - Taxd
The total value of RSUs (£12,000) will be treated as taxable employment income and falls into the 40% income tax bracket; they will pay 2% employee National ...
[78]
EMI Schemes | Enterprise management incentives | How they work
EMI option schemes are designed to help trading companies provide their people with significant tax benefits compared to other share arrangements.
[79]
RS/RSU | France | Global Equity Matrix
Employee social tax on qualified RSUs applies at sale, but employer is not required to withhold.
[80]
The French Finance Act for 2025 reforms the tax and social security ...
Apr 2, 2025 · The French Finance Act for 2025 radically overhauled the tax and social security treatment of management packages. The BSPCE regime is also subject to some ...<|separator|>
[81]
2025 Finance Bill Introduces New Income Tax and Social Security ...
Mar 27, 2025 · The French government has established a new tax and social security regime applicable to the net gains realized from the sale of securities acquired or ...Missing: restricted charges
[82]
CRA outlines potential changes to RSU sourcing methodology - EY
The Canada Revenue Agency (CRA) introduces a new methodology for sourcing restricted share unit (RSU) benefits that it refers to as the “Hybrid Methodology.”Missing: treatment | Show results with:treatment
[83]
The Taxation of RSUs in an International Context - Diosdi & Liu, LLP
Aug 2, 2022 · The following is a general summary of the cross-border tax consequences associated with the grant of restricted stock units (“RSUs”). A ...
[84]
Cross-Border Equity Compensation Legality | Pebl - Velocity Global
May 22, 2025 · Many countries tax RSUs at vesting (e.g., Canada, Australia), but others, like France, tax earlier and require careful plan design to avoid ...
[85]
RSU tax withholding for foreign sub employees addressed
Jul 18, 2023 · RSUs typically generate taxable income when the stock is transferred to the employees, which occurred shortly after the vesting date in the RSUs ...Missing: variations double
[86]
4.8 Restricted Shares | DART – Deloitte Accounting Research Tool
The post-vesting restrictions should be considered when estimating the grant-date fair value of the award [ASC 718-10-30-10].<|separator|>
[87]
[PDF] A Guide to Accounting for Stock Compensation - RSM US
• Estimate forfeitures and adjust compensation costs recognized to reflect the estimate ... Keeping this in mind, the fair value of a nonvested share (commonly ...
[88]
2.2 Stock-based compensation measurement basis and objective
ASC 718's measurement objective is to determine the fair value of stock-based compensation at the grant date assuming that employees fulfill the award's vesting ...
[89]
2.7 Estimates and adjustments for forfeitures - PwC Viewpoint
Under ASC 718, if a company has a policy to estimate forfeitures, then it is required to develop an assumption regarding the pre-vesting forfeiture rate ...
[90]
Stock-Based Compensation - SEC.gov
An annualized forfeiture rate was used as a best estimate of future forfeitures based on the Company's historical forfeiture experience.
[91]
6 Principles for Accounting for Stock-Based Compensation - NASPP
Mar 19, 2025 · Thus, the fair value of restricted stock and unit awards is generally the market value or fair value of the stock (less any amount paid for it), ...
[92]
8.2 Selecting an option-pricing model - PwC Viewpoint
For awards with typical service conditions and performance conditions, the Black-Scholes model will generally produce a reasonable estimate of fair value. Monte ...
[93]
8.5 Lattice models - PwC Viewpoint
Lattice models accommodate various inputs for employment events, employee exercise patterns, and dynamic forecasts, unlike single-value models.
[94]
Pay Versus Performance Is Here, Part 3: Valuing Stock Options for ...
Oct 26, 2022 · It's common knowledge that TSR-based awards with market conditions must be valued using Monte Carlo simulation and that vanilla RSUs are valued ...
[95]
26 CFR § 1.409A-1 - Definitions and covered plans. - Law.Cornell.Edu
(i) A valuation of a class of stock determined by an independent appraisal that meets the requirements of section 401(a)(28)(C) and the regulations as of a ...
[96]
[PDF] Section 409A - KPMG agentic corporate services
Dec 16, 2019 · A “stale” valuation may be a source of potential exposure when considering whether stock options fit within the exemption. There are certain ...
[97]
The Ultimate Guide to Accounting for Stock-Based Comp | Numeric
Jan 29, 2024 · Forfeiture of Restricted Stock. If an employee is terminated or leaves prior to the restricted stock vesting, the RSU is forfeited. In this ...
[98]
ASC 718 Explained: Guidelines for Expensing Stock Options - Carta
May 31, 2023 · ASC 718 is the standard accounting guidance used by companies to “expense options,” or recognize the transfer of value involved in awarding stock options.
[99]
A guide for accounting for stock compensation - RSM US
Jun 26, 2024 · The estimation of fair value for stock compensation awards – including fair value at grant date, as well as describing valuation techniques ...
[100]
Stock option expense recognition and the cost of equity
Further, we find that the impact of SFAS 123R was greater for firms operating in technology-focused industries, likely due to their heavy use of stock options.
[101]
7.5 Diluted EPS - PwC Viewpoint
The unvested shares are included in the diluted EPS computation by applying the treasury stock method and assuming that the proceeds will be used to buy back ...
[102]
4.2 Treasury Stock Method | DART
The treasury stock method represents a method for determining the dilutive effect of options, warrants, nonvested shares, forward sale contracts, and similar ...Missing: unvested | Show results with:unvested
[103]
RSU vs Stock Options: Key Differences & Benefits - Equity - Carta
Dec 8, 2023 · Startups move from issuing employee stock options to restricted stock units (RSU) as a form of equity compensation as they become larger.Missing: 2004 FAS 123R
[104]
RSU vs Stock Options: Key Differences Founders Need To Know
Stock options typically offer greater upside potential, as employees can buy shares at a lower price and benefit from future price appreciation. RSUs offer more ...
[105]
Nasdaq 100 Annual Returns by Year - Slickcharts
Annual returns for the Nasdaq 100 Index starting with the year 1986. Returns calculated using the closing price of the last trading day of the year.Missing: RSUs | Show results with:RSUs
[106]
Dividends and Equivalents: Ten Things to Know - NASPP
Mar 20, 2024 · RSUs Can't Earn Dividends Prior to Settlement. The shares underlying restricted stock units aren't issued until the awards are settled. RSUs ...
[107]
RSAs Vs RSUs: Main Differences & Tax Implications - Qapita
Jul 17, 2024 · Restricted Stock Awards are regarded as a form of 'restricted stock' as the employees are not allowed to transfer or sell the shares freely. Two ...
[108]
83(b) Election: Tax Strategy and When and Why to File - Investopedia
The 83(b) election allows individuals to pay taxes on the fair market value of restricted stock at grant time, not vesting time. Filing an 83(b) election can ...<|separator|>
[109]
When to Pay Taxes on Restricted Stock Awards - Charles Schwab
An 83(b) election allows you to pay income tax upfront based on the value of the shares on their grant dates rather than on their vest dates.
[110]
Restricted Stock Units (RSU): 4 Benefits for Companies - Eddy
RSUs offer a way to offer a new employee a competitive compensation package while incentivizing them to stay and invest in the organization through its goals.
[111]
5 Advantages of Restricted Stock – and What That May Mean For You
Aug 22, 2025 · One advantage of restricted stock is that when the award vests, your employer commonly withholds income tax on the vested value. Employers will ...Restricted Stock Generally... · There Are Many Advantages to...
[112]
[PDF] Stock-Based Compensation - Morgan Stanley
Apr 18, 2023 · Roughly one-third of companies in the Russell 3000 reported negative net income in 2022, and many companies use more cash than they generate ...
[113]
Stock Options: The Backdating Issue - EveryCRSReport.com
empirical study concluded that the options backdating scandal had reduced the value of the stock of 110 corporations by at least $100 billion.24. Costs of ...
[114]
Backdating Employee Stock Options: Accounting and Legal ...
Oct 7, 2007 · Backdating occurs when an employee stock-option grant reflects a grant measurement date earlier than the true grant measurement date. Such ...
[115]
[PDF] Frequently asked questions on Equity Compensation Plans - NYSE
Dec 1, 2021 · On the other hand, restricted stock could not be issued before shareholder approval, because restricted stock is issued upon grant. Note ...
[116]
[PDF] Shareholder Approval of Equity Compensation Plans Under the ...
The final NYSE rule requires shareholder approval of all "equity compensation plans" and "material revi- sions" to such plans, subject to limited exemptions.
[117]
Restricted Stock and Restricted Stock Units: How to Design and ...
Oct 15, 2024 · No Dividends or Voting Rights for RSUs: RSUs do not provide dividends or voting rights before vesting, which may be seen as less beneficial ...
[118]
Does restricted stock turn CEOs into risk-averse managers? Insights ...
We argue that CEOs correctly perceive restricted stock grants as offering both upside and downside risk possibilities. This leads to our research question: How ...
[119]
[PDF] Does restricted stock turn CEOs into risk-averse managers? Insights ...
Restricted stock's impact on CEO risk-taking is debated; some find it encourages risk-taking, others risk-aversion. Regulatory focus is proposed to influence ...
[120]
CEO Restricted Stock, Incentives, and Corporate Innovations* - Boli
Jul 1, 2024 · Moreover, several studies document that restricted stock may increase CEOs' risk-aversion given that it has a linear payoff schedule, ...
[121]
CEO Stock-Based Compensation: An Empirical Analysis of Incentive ...
We also find that restricted stock, due to its linear payoffs, are relatively inefficient in inducing risk-averse CEOs to accept risky, value-increasing ...Missing: evidence | Show results with:evidence
[122]
[PDF] The Growth of Executive Pay Lucian Bebchuk and Yaniv Grinstein ...
He suggests that the bull market increased the wealth of executives, which in turn increased their reservation wage by increasing the monetary amount needed to ...
[123]
Executive incentives: Share options v restricted share plans
Ina "Bull" market, executives reap a windfall benefit, whilst in afalling market the options can go underwater and become valueless.Executives of similar ...
[124]
Why CFOs Must Rethink Stock-Based Compensation Strategy
Jun 6, 2025 · Executive Summary: With stock-based compensation (SBC) dilution averaging 0.2% to 8.6% annually across public companies, CFOs face mounting ...
[125]
The S&P 500's hidden $828 billion annual expenses
Mar 15, 2017 · This amounts to average annual buyback being used to offset dilution from equity compensation plans of 1.6% in 2015.
[126]
Stock-Based Compensation (SBC) Dilution Benchmarking - 2024 ...
Jul 16, 2024 · The statistical breakdown of average net SBC-dilution (across 2022 and 2023) was: Top quartile – Less than 1.65% annual dilution; Median – 2.85% ...Missing: S&P 500 percentage
[127]
[PDF] Employee Options, Restricted Stock and Value - NYU Stern
Why do options affect equity value per share? □ It is true that options can increase the number of shares outstanding but dilution per se is not the problem.
[128]
Equity compensation: a complete guide for startups - Ravio
Jan 30, 2025 · However, dilution does not typically mean an actual reduction in the value of the equity – because the value of the company should continue to ...Missing: despite | Show results with:despite