Equity Compensation Review: Options, RSUs, and Grants Explained
Startup job offer includes "100,000 options." Sounds great. But is it worth anything? What's the strike price? Vesting schedule? If company never sells, are your options worthless? This guide explains equity so you understand what you're actually getting.
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Reviewed by Sarah Martinez
Employment Attorney, CA Bar Licensed
Employment Contract Review Team
Employment Law Expert
Reviewed by licensed employment attorneys
Types of Equity: Options vs. RSUs vs. Grants
STOCK OPTIONS (ISOs & NSOs): You have right to buy company stock at fixed price (strike price). Example: "100,000 options at $0.50 strike price." This means you can buy 100k shares for $50k total ($0.50 × 100k). ISOs = tax-advantaged (if company is acquired). NSOs = regular tax treatment. RSUs (RESTRICTED STOCK UNITS): You're granted actual shares, but they vest over time. Example: "50,000 RSUs vesting over 4 years." At each vesting event, you own the shares (no purchase needed). When company goes public, RSUs become cash. GRANTS (Restricted Stock): Similar to RSUs but you own the shares immediately (vesting affects your voting rights, not ownership).
Understanding Vesting, Cliffs, and Acceleration
VESTING: You earn equity gradually over time. 4-year vesting is standard: 25% per year or 0.5833% per month. CLIFF: Before cliff date, you own 0% of equity. At cliff, a chunk vests immediately (usually 25%). Then equity vests gradually. Example: "4-year vesting, 1-year cliff" = 0% at month 11, 25% at year 1, then 0.5833% per month. If you leave before year 1: lose 100%. If you leave after year 1: you earned 25% (not all lost). ACCELERATION: Vesting speeds up. Single-trigger = happens automatically (usually on acquisition or IPO). Double-trigger = requires two events (company acquired AND you're fired or leave).
Is Equity Actually Valuable?
COMPANY STAGE MATTERS: (1) Early-stage startup (Series A): options might be worth $0 (company might fail) or millions (if successful). High risk. (2) Growth-stage startup (Series C+): more likely to exit, options more valuable. (3) Pre-IPO: equity very likely to become valuable. (4) Public company: equity converted to cash (RSUs) or stock, definitely valuable. QUESTIONS TO ASK: (1) What's company valuation? (2) Has company raised funding? How much? (3) Is company profitable? (4) What's expected exit (IPO, acquisition, other)? (5) How many total shares outstanding? (dilution matters). CALCULATION: Use Levels.fyi or startup equity calculators to estimate value based on company stage and funding.
Key Takeaways
1. Understand what the clause means before negotiating it 2. Many clauses are more enforceable in some states than others 3. Ask for specific limits: term limits, geographic scope, and carve-outs 4. Document any verbal promises in writing
Common Mistakes to Avoid
• Accepting blanket restrictions: Never accept "I can't work for any competitor ever." Negotiate: specific industry/role, geographic scope (just our state?), time limit (1-2 years max). • Ignoring enforceability: A non-compete might be unenforceable in your state—but the company might sue anyway and make you defend it. Know the law. • Not asking for carve-outs: Example: "I'll accept a non-compete, but [my side business] and [open-source projects] are exempt." Reasonable exceptions are negotiable. • Trusting the company won't enforce it: "No one's ever actually sued under this clause" means nothing. If they do, you're liable. Negotiate the risk away upfront. • Forgetting about change-of-control: If company is acquired and you're fired, the non-compete STILL applies. Ask for acceleration or cancellation on acquisition.
Protect Yourself
Step 1: Understand the clause fully—ask HR or legal for clarification if needed. Step 2: Research enforceability in YOUR state—restrictions vary dramatically by jurisdiction. Step 3: Identify what you'd propose instead—specific limits, geographic scope, time limits, carve-outs. Step 4: Email HR with your proposed revision. Example: "I propose limiting the non-compete to 12 months (instead of 2 years) and excluding [XYZ industry]." Step 5: Be prepared to walk if the company won't budge on critical terms. Step 6: Get your revision in writing and signed before your first day.
Real-World Example: The Non-Compete That Almost Killed a Career
Riley signed a job offer with a 2-year non-compete clause. It said: "Employee agrees not to work for any competitor in any capacity for 24 months after termination." Riley didn't think about it—the job seemed solid. But 3 years later, Riley was laid off. She got a job offer from a competitor (who would pay her 30% more), but couldn't take it because the non-compete was still in effect. She had to turn it down. She lost 24 months of career progress and hundreds of thousands in lost salary. If Riley had negotiated the non-compete upfront, she could have: (1) Limited it to 12 months, (2) Limited it geographically (just this state?), (3) Limited it to direct competitors (not the entire industry). Take-away: non-competes can trap you for years. Negotiate them aggressively.
📚 Related Guides to Help You Further
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People Also Ask
What should I do if I find issues in my equity compensation review: options, rsus, and grants explained?
If you identify concerning clauses, document them and request changes before signing. Consider consulting with an employment attorney for complex terms.
Can I negotiate the terms mentioned in this equity compensation contract review: stock options, rsus, and grants?
Yes, most employment contract terms are negotiable. Many employers expect negotiation, especially for equity, non-compete clauses, and severance terms.
How long does it typically take to review and negotiate these clauses?
Basic review takes 1-2 hours. Negotiation can take 1-3 weeks depending on employer responsiveness. Use our AI analyzer for quick initial analysis.
What are the most important clauses to focus on?
Prioritize: compensation/equity, non-compete restrictions, severance terms, and termination conditions. These have the biggest long-term impact.
Frequently Asked Questions
What's the difference between options and RSUs?
OPTIONS: You buy shares at strike price. If company succeeds, you profit (sell at higher price). If company fails, you lose the strike price. RSUs: You own shares immediately as they vest. If company succeeds, you profit. If company fails, shares are worthless.
What if the company never goes public or gets acquired?
Your equity might be worthless. This is the startup risk. Before accepting startup offer, ask: "What's the expected timeline to exit?" If company can't sell, equity never becomes cash.
Can I negotiate equity grant after I've signed?
Very hard. Negotiate equity (amount, vesting schedule, cliff) BEFORE signing. After signing, equity grant is usually locked in.
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