Restricted stock, initially created as a “golden handcuff” to offer executives enough of a compensation sweetener to keep them attached to the company, has recently become a more popular benefit for rank-and-file employees. Restricted stock shares have a vesting schedule that limits the number of shares you can sell each year. As with employee stock options, they are usually issued to employees in grants, and each grant has a particular vesting schedule. You lose any unvested restricted stock when you leave the company.

What They Are

Restricted stock shares are a little nicer benefit than employee stock options when your company stock is not increasing rapidly in value. Stock options are issued with a strike price equal to the price at which the stock is currently trading, but with a strike date set in the future. If the share price doesn't increase, your option may never gain value — a situation called “being under water” — because if you were to exercise the options, you would find yourself holding shares worth less than what you paid. Restricted stock shares — or units — represent real shares in the company. Regardless of what happens to their price after you receive them, as long as you're on the job when they vest, restricted stocks still have value to you.

Don't Overdo It

Restricted shares are taxed as income in the year they vest and are available to sell. Consider this, and whether you also own employee stock options, when deciding to sell your stock. If your job and much of your net worth is connected to the fortunes of the same company, you may be taking more risk than you realize.