In this tight labor market, it’s important to find ways to make your company stand out to potential employees. One way to recruit top talent is to offer competitive benefits like RSUs. RSUs are a type of equity compensation that grants workers shares in your company after a vesting period. To learn more about how to incentivize employees with RSU, just keep reading.
Why You Should Incentivize Your Employees With RSU
Below are some of the benefits of adding RSUs to your employee compensation package.
Gets Employees Invested in the Company’s Success
The main benefit of offering RSUs is that it gets your employees invested in your company’s success. RSU stands for restricted stock unit. It’s a type of equity compensation that grants workers a certain number of company shares over a vesting schedule of several years. For example, employees may receive 1/4 of their RSUs every year after their first year with the company.
Since RSUs are company shares, employees earn more money when the company does well. RSUs allow employees to own a small portion of the business and share in its success. This gets them invested in growing the company and encourages them to perform at a high level.
In addition to time-based restrictions, you can also place performance-related restrictions on RSUs. You can stipulate that employees’ RSUs won’t vest until your company achieves an important milestone. This could be a product launch, acquisition, or initial public offering.
Performance-based restrictions can make your employees feel even more motivated to work hard toward company-wide goals.
Helps Retain Young Talent
Young workers bring a unique skill set and fresh perspective to the workplace. Millennials and Zoomers are digital natives. They know how to harness technology to get results for their employers. But it can be difficult for businesses to figure out how to attract and retain younger employees. They’re known to job hop frequently for better opportunities and pay. So how can you keep them engaged and invested in your company’s success long-term?
Equity compensation like RSUs can help you hold onto young workers. More than half of workers under the age of 35 rated equity compensation as important when looking for a job, so offering RSUs may enable you to recruit young talent. And since RSUs vest over several years, your employees will be incentivized to stay put instead of job-hopping.
RSUs Are Easier
The two main types of equity compensation are RSUs and stock options. RSUs are usually simpler for businesses to manage from a tax and legal perspective than stock options. RSUs may also be easier for employees to take advantage of.
Stock options give employees the right to purchase a certain amount of shares from the company at a predetermined price, called a strike price. To buy the stock and exercise their options, employees need to have liquid cash on hand.
Employees may prefer RSUs because they’re granted for free. They don’t need cash on hand to purchase stock—it’s simply awarded to them at the end of the vesting period. They’ll have to pay taxes on their RSUs, but only when they vest and become available to sell. So if they can’t pay for the taxes out-of-pocket, employees can always sell their RSUs to cover the bill (unless the company is private).
Since RSUs don’t require as much of a financial outlay, employees may prefer them. Many large companies like Microsoft, Tesla, Google, Apple, and Amazon have switched over to RSUs instead of offering stock options. So offering RSUs in your benefits package may enable you to stay competitive with larger employers and recruit high-achieving employees.
Have you ever considered offering your employees RSUs? Let me know in the comments section below!
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.