Restricted stock is often used as a form of employee compensation, in which case it typically becomes transferable ("vests") upon the satisfaction of certain conditions, such as continued employment for a period of time or the achievement of particular product-development milestones, earnings per share goals or other financial targets.
[1] in venture capital–backed startups may include the following:[3] Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public.
123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005.
However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.
[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.
[1] Revenue authorities in the United Kingdom and the Republic of Ireland have issued guidelines on the taxation of restricted stock and RSU awards.