Share-based awards are forms of payment whose value is tied to the market price of the company’s stock. Share-based compensation plans include:
Stock award plans,
stock option plans,
stock appreciation rights (SARs), or
one of the several similar plans.
The goals are to provide compensation to designated employees, while sometimes providing those employees with a performance incentive.
Executive compensation sometimes includes a grant of shares of stock or the right to receive shares. Usually, such shares are restricted in such a way as to provide some incentive to the recipient. Typically, restricted stock award plans are tied to continued employment.
There are two primary types of restricted stock plans.
Restricted stock awards (RSAs): Shares actually are awarded in the name of the employee, although the company might retain physical possession of the shares. The employee has all rights of a shareholder, subject to certain restrictions or forfeiture.
Restricted stock units (RSUs): A restricted stock unit is a right to receive a specified number of shares of company stock. It could be a performance bonus, a signing bonus, or regular compensation. The employee doesn' t receive the stock right away. Instead, the shares are distributed as the recipient of RS Us satisfies the vesting requirement. So, like restricted stock awards, the recipient benefits by the value of the shares at the end of the vesting period. Unlike restricted stock awards, though, the shares are not issued at the time of the grant. De laying the payment of dividends to these not yet outstanding shares is more acceptable to other shareholders.