What's the Difference Between Performance Stock Units (PSU) and Restricted Stock Units (RSU)?

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Today, I’m answering a common question among corporate executives: What’s the difference between Performance Stock Units, or PSUs, and Restricted Stock Units, known as RSUs, in the context of executive stock-based compensation? In this video I will share the key differences, reveal common mistakes, and share one little-known-fact that may surprise you.
But before we begin, I encourage you to go to savantwealth.com/guides and download our Financial Advisor Evaluation Checklist. You may want to consult a financial advisor to help guide you personally and our checklist helps makes it easy for you to find the right fit. Now let’s get started.
Both PSUs and RSUs are long-term incentives that allow executives to acquire stock in their company, but they serve different purposes and come with unique features. First, as the name suggests, Performance Stock Units are tied to your performance. If certain metrics are achieved, the number of PSUs you’ll receive can actually increase. For example, if you’re granted 1,000 PSUs and your performance metrics exceed targets, you might end up with 1,500 PSUs upon vesting. However, the same rules apply if your targets aren’t met. If you underperform, you could end up with as few as 800. Common metrics used to measure performance are Total Shareholder Return, or TSR, but other metrics may apply such as your company’s earnings. You will want to review your grant agreement closely for this information.
RSUs are more straightforward. When you receive 1,000 RSUs, you can expect to receive exactly that number upon vesting, usually after a set period, like three years. There’s no performance metric that could reduce or increase the amount-what you see is what you get!
If you’re receiving either of these benefits, you’ll want to make certain that you’re withholding enough for taxes each year, or you may be in for a rude awakening come tax time. You also want to be mindful of the total concentration of your company stock relative to the rest of your portfolio holdings. An overconcentration of any one stock can present an unintended risk in your investment plan. A financial advisor with experience managing executive-based compensation can help you avoid both of these mistakes and can help implement an ongoing strategy to manage both your tax situation and investment risk.
And here’s something you may not realize. The wealth you can create for yourself and your family by strategically leveraging your stock-based compensation is unique. It is almost impossible to save enough cash flow from earned income to match wealth built-up from employer stock-based equity. The right strategic plan can help you maximize wealth, minimize taxes, and manage portfolio risk.
My name is Chuck and I am a Financial Advisor with Savant Wealth Management. If you receive stock-based compensation and don’t have a strategic plan, I encourage you to get in touch.
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Let’s figure this out together.
Don’t forget to check out savantwealth.com/guides and download our free Financial Advisor Evaluation Checklist. Whether you’re hiring a financial advisor for the first time, or comparing your advisor to someone new, this checklist is designed to help you feel more confident as you take that next step.
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