Meaning
An equity compensation structure promises to deliver shares of company stock to an individual at a specified future date after vesting conditions are satisfied. These restricted stock units are frequently awarded to founders transitioning to advisory roles or to incoming executives who replace them. They differ from options because they hold value even if the company share price does not increase.
Vesting Condition
The allocation relies on time-based milestones or performance targets to convert the initial grant into actual stock. When a founder receives restricted stock units, the transfer of ownership occurs incrementally to ensure continued alignment with the board of directors. This structure prevents a departing leader from securing immediate liquid assets before long-term value is realized.
Financial Benefit
Recipients incur no upfront cost to acquire the underlying shares upon grant. The eventual value depends on the market price of the stock at the moment of delivery, which creates a strong incentive to support the company.
Transfer Limit
This instrument remains non-transferable and subject to forfeiture until the distribution occurs. If the recipient terminates their advisory relationship with the firm before vesting, the remaining restricted stock units are cancelled. This condition secures the loyalty of the participant during the transition period.
