If you`re a director in a company, you might be offered a Restricted Stock Unit (RSU) agreement. This is a form of equity compensation that grants you the right to receive shares of the company`s stock after a vesting period.
A director RSU agreement outlines the terms of this compensation, including the number of RSUs granted, the vesting schedule, and any conditions that must be met before the RSUs can be exercised or sold.
Here are some key terms to look out for in a director RSU agreement:
Vesting schedule: This is the timeline for when you can exercise your RSUs. A typical vesting schedule might be three years, with one-third of the RSUs vesting each year. This means that after three years, you`ll have the right to exercise all of your RSUs.
Conditions: Some RSU agreements have conditions that must be met before the RSUs can be exercised. For example, the company might require that the director remain employed for a certain period of time, or that the company meet certain performance goals.
Tax implications: RSUs are taxed as ordinary income when they vest, so it`s important to understand the tax implications of your RSU agreement. You`ll also need to report your RSUs on your tax return, so make sure you keep good records.
Clawback provisions: Some RSU agreements have clawback provisions that allow the company to take back RSUs under certain circumstances. For example, if the director violates a non-compete agreement or engages in misconduct, the company might claw back some or all of the RSUs.
Overall, a director RSU agreement can be a valuable form of compensation for directors. However, it`s important to review the agreement carefully and understand the terms before signing on. This will help ensure that you receive the maximum benefit from your RSU compensation and avoid any surprises down the road.