Restricted stock is a gift of stock from the company to the employee. Unlike stock options, restricted stock does not require any investment on the part of the employee. It’s called restricted stock because the employee can’t sell the shares until a certain number of years have gone by or until the employee or the company meets certain performance goals.

Restricted stock is less risky than options. If an option goes underwater, meaning the stock’s market price falls below the exercise price, the option cannot be exercised and has no immediate value. Restricted stock, on the other hand, always has some value unless the share price falls to zero.

Options, on the other hand, usually have more upside potential. That’s because most companies hand out more options than shares of restricted stock. An employee who usually gets 1,000 options each year might get only 300 shares of restricted stock. If the stock price climbs $10 per share, the employee makes $3,000 on the restricted stock.

Had he received options, he would have made $10,000, assuming the options are not underwater.