Employee Equity: Restricted Stock and RSUs
avc.com
avc.com
If you have 100,000 options at $1/share then you would have to pay $100,000 to exercise if you want to quit. That's often enough to discourage employees from leaving.
With RSUs or restricted stock, you lose some of that implicit lock-in (as I understand it). There may be a way to re-create the lock-in with RSUs, but certainly not with restricted stock.
For reference, OpenDNS did the reverse and gave out restricted stock for our first 3.5 years of being in business and then moved to giving out option grants.
Simply put, for the first year, I received a non-negligible amount of RSUs that vest evenly over 2 years beginning a year after grant. I was receiving these on a monthly basis based on company performance. My first awards began vesting in June of this year, and will continue (monthly) until March of next, with the second half of the grants beginning vesting in June of next again.
It's a pretty strong argument to convince me to stay until at least March of 2012, which at least keeps me here for as long as I've been anywhere else (will have been a total of 4 years). Additionally these shares vest and the value is deposited into my ESPP plan, making it a no brainer to hold onto these shares for the time being, as the company is continuing to grow.
RSUs are a great benefit to the employee, there's no cost up front to them, and it's an obvious correlation between share price & value - vs options that can sometimes be very confusing for employees.
Like OpenDNS however, any further grants coming my way are more likely to be of the Option variety. Personally options are less of a reason for me to stay - if they're granted at a price that is "just out of reach" - there's not going to be much benefit for those 100000 options granted at $1 when the stock price is $1.01.
Lastly, nobody has to pay to quit, often times an option exercise is simply an exercise to cover cost of shares - so the 100000 options at $1.00 would be a benefit of $1000, without the employee having to front the $100000.