A restricted stock plan is an option offered by companies to their employees, especially executives, as part of a compensation package, where the top-performing employees get the right to buy stocks or other financial products at a specific price in the future. It is restricted in the sense that the right of buying the stocks depends on the executive’s work performance, the duration of his employment, the price of the stock, the company’s operating profit and so on. The employee’s right to sell the stock is also restricted if the sale will be negatively affect the company.
Restricted stock plans are fast becoming a popular way of attracting talented employees and entice them to stay with the company for a longer duration. A restricted stock plan is mutually beneficial to both companies and their employees because it encourages employee loyalty and helps reduce turnover rates. Employees find it profitable as they are regarded to be long-term assets and beneficial after retirement.
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[Also Read: Incentive Stock Options]
Sample Restricted Stock Plan Agreement
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