Question

What is restricted stock? How do restricted stock awards differ from restricted stock units (RSUs)? Describe how compensation expense is determined and recorded for a restricted stock award plan?

Answer 1

Restricted stock is an award of company stock, subject to conditions (such as continued service to the company or attainment of performance goals) that must be met before you have the right to sell or transfer the stock. Restricted Stock Units (RSUs) are equivalent to shares, but are converted to stock upon vesting. Generally, Restricted Stock Shares (RSS) and Units “vest” — or become unrestricted — in increments over a period of time or when performance goals are met.

As the service provider for your companyís restricted stock plan, Morgan Stanley helps you keep track of your awards and provides you with online access to your restricted stock account — and help when you need it.

Companies may award restricted stock shares or restricted stock units. Restricted stock shares are just that — shares of stock. Units may be paid either in cash or stock as outlined in your award agreement. Units resulting in shares convert to stock, typically at a 1:1 ratio. Since the underlying shares are not issued until the units vest, you may not have voting rights on your unvested units. Please consult your award agreement for details on voting rights. The units are also not eligible for dividends (since dividends are paid only on actual stock); however, some plans are designed to credit the equivalent to dividends paid on the underlying stock. Please consult your award agreement for how dividends and dividend equivalents may be handled for your specific award. Generally, taxes are due when the unit vests.

Restricted stock plans usually are tied to continued employment of the person receiving the award. The compensation associated with a share of restricted stock is the market price at the grant date of an unrestricted share of the same stock. The amount is accrued as compensation expense over the service period for which participants receive the shares.For example if the market price is $22.50 per share and there is 4 million shares for a 3 year vesting period. Then $22.50 x 4,000,000 = $90,000,000 compensation for the entire vesting period. But the retired stock can only record $30,000,000 each year since it is

amortized.

Compensation Exp. $30,000,000

To APIC – Restricted Stock $30,000,00