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Restricted stock unit (RSU)

A promise to deliver shares to an employee on a vesting date; on vesting, new shares are created and part is usually sold to cover tax.

RSUs are the dominant form of equity pay at listed companies. No shares exist until vesting; on the vest date the company issues them, which increases outstanding-shares and causes dilution. Most plans sell a slice immediately to cover withholding, called sell-to-cover.

Vest dates cluster, often quarterly right after earnings, and the sell-to-cover flow is mechanical selling that has nothing to do with a view on the stock. In thin names it is visible in the tape.

Example: 2M RSUs vest at $50. At a 37% withholding rate roughly 740,000 shares are sold into the market on the same morning, about $37M of supply, regardless of what the company just reported.

Related: stock-based-compensation, restricted-stock, outstanding-shares

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