Overview
What is it:
A PSU is an equity award, structurally similar to an RSU, where the number of shares that ultimately vest is determined by whether specified performance conditions are met over a defined performance period, rather than by duration of employment alone.
Why does it matter:
PSUs exist because a company wants a portion of your long-term incentive tied to performance outcomes, not just tenure. Layering performance conditions onto an RSU-like structure is a deliberate design choice: it ties a meaningful share of your total compensation directly to results the board has decided matter most. These strategic and/or operational priorities can be expressed by a variety of metrics.
What do people most often get wrong:
People often read the PSU grant size in an offer letter as a fixed number of shares. It's a target number of shares. The actual number that vests depends on the performance multiplier applied at the end of the performance period, and that multiplier can land anywhere from zero to well above 100% of target, depending on the plan design.