Can restricted stock and performance shares go underwater?
Not in the way stock options can. Restricted stock is worth the full market value of the stock when it vests (or, with restricted stock units, when the shares are delivered). It does not matter if the stock price has dropped since the grant date. However, the value of the grant goes down (or up) by the same percentage that your company’s stock price does. Example: You received a grant of restricted stock when the market price was $25 per share. The stock price has dropped 20% to $20 per share at vesting: the value of the stock you receive is $20 per share (at $20 per share, stock options granted at $25 would be $5 underwater). If the stock price increases 20% to $30 at vesting, your stock is worth $30 per share. The grant may lose value if the stock price drops, but the value cannot fall to $0 (i.e. go underwater) unless the stock price does. Since restricted stock always has value and does not require you to purchase it (there is no exercise price as with options), companies grant few
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