Performance Share Unit (PSU)
Also: PSU, performance share unit, PSUs, performance stock unit
An equity award that vests based on company performance metrics such as relative TSR, revenue, or operating margin. Payout is variable, typically 0% to 200% of target.
A PSU is a performance-contingent RSU. Instead of vesting on time alone, payout depends on whether the company hits defined targets over a performance period, usually three years. Common metrics include relative total shareholder return against a peer index, revenue growth, adjusted EBITDA, or free cash flow. Payout ranges from 0% to 200% of target shares.
Example: a VP receives a target PSU grant of 5,000 shares tied to three-year relative TSR versus the S&P 500. The company finishes at the 75th percentile of peers, triggering 150% payout. The VP receives 7,500 shares, taxed as ordinary wage income on the vesting date.
Common mistake: modeling PSU expected value at target. In practice PSU payouts cluster near 0% or near 200%, not at 100%. Plan cash flow for the zero scenario and treat the upside payout as a windfall. Double-trigger acceleration terms matter in a deal: check whether unvested PSUs convert to time-based vesting or lapse.
PSUs matter at the executive and director level, where they are the largest component of target compensation. Withholding coverage at vest is the dominant tax task: the 22% federal supplemental rate rarely matches the actual bracket.