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What do you mean by Performance Shares & What is its Purpose?

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May 15, 2023


What’s Inside

There are many incentive-based programs that a company or organisation initiates to reward their employees, and one such initiative is performance shares. Companies offer performance shares to incentivise and reward their employees for good performance. Companies often use performance shares to align the interests of their employees with the interests of the company's shareholders. It's seen as a win-win scenario for both employer and the employee — when the company performs well.

Performance shares are an effective way for companies to incentivise their employees to work towards the company's long-term success. By aligning the interests of the employees with those of the company, performance shares can help to improve employee retention, encourage a long-term focus, and ultimately drive better business performance.

What is a PSU stock?

A PSU stock, also known as a Performance Stock Unit, is a sort of equity remuneration given to employees by their employers. It is a commitment to provide an employee company share based on the firm's success over a set period of time. For employees who wonder what a PSU stock is and how it can benefit them, it is crucial to understand PSUs, how they are vested and what benefits employees can enjoy in the long run.

  • Companies use it as compensation to encourage and keep their staff members.
  • The award is usually linked to the company's success during a specified time period.
  • It might be a way for employees to contribute to the company's success and benefit from its expansion.
  • If the firm does well, the employee will be given a set amount of shares of stock.
  • The shares are often subject to vesting rules, which means the employee may be unable to sell them for a period of time.
  • Employees can profit from their company's success through PSUs, which match their interests with the company's shareholders.

What are the key features of performance shares?

Performance shares are a type of equity compensation companies use to reward their employees based on their performance. Here are some key features of stock performance:

Performance-based vesting

Unlike standard stock options, performance shares vest depending on attaining particular performance targets. These objectives might be connected to sales growth, profitability, or other vital organisational measures.

Long term emphasis

Because the vesting of performance shares is linked to particular performance targets, it encourages employees to focus on the company's long-term success rather than short-term rewards. This is advantageous to both the corporation and the employees.

Aligns interests

Stock performance matches employees' interests with those of the corporation. Employees benefit when the firm operates well. This motivates people to work harder and contribute more to the company's success.


Because performance shares often vest over several years, they can be an excellent tool for keeping essential staff. Employees are likelier to stick around if they have a vested interest in the company's long-term success.

Tax implications

Performance shares may be taxed differently than other types of equity remuneration, such as stock options. Employees should be aware of the tax consequences of performance shares before accepting them as part of their remuneration package.


In the long run, a company or corporation may help you generate wealth using performance stocks by connecting the stock's value to the company's performance, rewarding employees to strive towards enhancing the company's success and profitability. As the firm operates successfully, the stock value rises, potentially contributing to long-term financial rewards for employees.

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Frequently Asked Questions

1. What is the purpose of restricted shares?

The purpose of restricted shares is to provide company ownership to employees over time, often as part of their compensation package.

2. What is performance-based restricted stock?

Performance-based restricted stock is a type of equity compensation granted to employees and executives based on achieving specific performance metrics, such as revenue growth or stock price targets.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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