Performance Share Unit (PSU) Agreement Template

Create a legally-sound PSU agreement that defines performance metrics, establishes vesting conditions, and protects both company and recipient interests. Customize for your organization's specific needs.

Performance Share Unit Agreement Template

A Performance Share Unit (PSU) Agreement is a critical legal document that outlines the terms and conditions under which performance-based equity compensation is granted to employees or executives. This comprehensive template helps organizations establish clear performance metrics, vesting schedules, and distribution terms for PSU awards.

What This Template Is For

This template serves as a foundation for creating legally binding PSU agreements that align employee incentives with company performance. It helps organizations document the specific conditions under which PSUs will vest and convert to actual shares, protecting both the company's interests and ensuring clarity for recipients. The agreement covers essential elements including performance criteria, measurement periods, and payout calculations.

When To Use This Template

Use this PSU agreement template when:

  • Implementing a new performance-based equity compensation program
  • Granting PSUs to executives or key employees
  • Updating existing PSU programs to reflect new performance metrics
  • Establishing long-term incentive plans tied to company performance
  • Documenting equity compensation terms for regulatory compliance

How To Customize It

Follow these steps to customize the PSU agreement:

  1. Define specific performance metrics (e.g., revenue growth, TSR, EBITDA)
  2. Set the performance measurement period and vesting schedule
  3. Specify threshold, target, and maximum performance levels
  4. Include company-specific termination and change-in-control provisions
  5. Add relevant regulatory compliance language
  6. Review and adjust payout calculation methodologies
  7. Incorporate any specific award limits or caps

Common Use Cases

PSU agreements are commonly used in:

  • Executive compensation packages
  • Long-term incentive plans for senior management
  • Company-wide performance-based equity programs
  • Retention strategies for key employees
  • Corporate restructuring situations

Best Practices

  • Clearly define all performance metrics and calculation methodologies
  • Include specific dates for performance measurement periods
  • Detail the exact vesting conditions and schedules
  • Specify treatment of PSUs in various termination scenarios
  • Include clear language on dividend equivalents
  • Address tax implications and withholding requirements

Template Variations

Common variations include:

  • Single metric vs. multiple metric PSU agreements
  • Relative performance vs. absolute performance metrics
  • Different vesting schedules (cliff vs. graded)
  • Industry-specific performance criteria

Success Stories

Organizations have successfully used this template to:

  • Implement transparent executive compensation programs
  • Align management incentives with shareholder interests
  • Create performance-based retention programs
  • Establish clear equity compensation frameworks

Frequently Asked Questions

What is the difference between PSUs and RSUs?

PSUs are performance-based units that vest only when specific company performance metrics are met, while RSUs (Restricted Stock Units) typically vest based on time of service alone.

How are performance metrics typically measured in PSU agreements?

Performance metrics are usually measured over a specific period (often 3 years) and can include relative TSR, revenue growth, EBITDA, or other financial metrics.

What happens to PSUs if performance targets aren't met?

If performance targets aren't met, PSUs typically expire worthless or vest at a reduced level based on the achievement percentage defined in the agreement.

Can PSU agreements be modified after issuance?

Modifications to PSU agreements typically require board approval and may have accounting implications. Any changes should be carefully documented and communicated.

How are dividends handled with PSUs?

PSU agreements often include dividend equivalent provisions that accumulate during the performance period and pay out only if the underlying PSUs vest.