Equity is the part of your compensation people are most embarrassed to ask about, which means it's the part most people get wrong. This guide gives you a plain-English map of the moving parts and the questions that protect you. None of it is tax advice — for the numbers that actually matter to your return, talk to a tax person who knows your situation.
The two flavours: RSUs and options
RSUs (Restricted Stock Units)
Most common at public companies and late-stage privates. The company grants you a number of shares that vest over time. Once they vest, they're yours automatically — taxed as ordinary income at the moment they vest, based on the share price that day.
At a private company, RSUs usually have a second condition called "double-trigger": you only really receive them after both the time-based vest and a liquidity event (IPO or acquisition). This is why early Stripe employees waited years to see anything despite being "vested" on paper.
Stock options (usually ISOs or NSOs in the US)
Common at earlier-stage startups. You're granted the right to buy shares at a fixed price — the strike price — within a certain window. If the company's value goes up, you can buy low and the difference is yours. If the company stays flat or goes down, the options are worth nothing.
ISOs (Incentive Stock Options) and NSOs (Non-Qualified Stock Options) differ on tax treatment. ISOs can qualify for long-term capital gains if you hold the shares long enough after exercise, but they trigger Alternative Minimum Tax — a trap people walk into every year. NSOs are simpler: you pay ordinary income tax on the spread between strike and fair market value when you exercise.
Outside the US: the UK has EMI options, which have favourable tax treatment if the company and the grant qualify. Most other countries have their own equivalent — the structure is similar, the tax is local.
Vesting: how you actually earn it
You don't get the equity all at once — you earn it on a schedule. The default in tech is four years with a one-year cliff: nothing if you leave in the first year, then 25% on your one-year anniversary, then a slice every month or quarter for the next three years.
- 1-year cliff: leave before this date, you walk away with $0 of equity. Some startups have a 6-month cliff; senior hires sometimes negotiate it away entirely.
- Monthly vs quarterly after the cliff: most companies vest monthly. Some still use quarterly — ask. Monthly means you can leave at any month-end without leaving a stub on the table.
- Refreshers: at public companies, expect new grants every year on top of the original. Don't sign a 4-year package without asking what the refresh cadence is — your year-5 income depends on it.
- Back-loaded vesting: a few companies (Amazon is the famous one) front-load with a small first-year vest then back-load year 3 and 4. The headline number looks great; the practical number for the first two years is much smaller.
Acceleration on acquisition
If the company gets acquired before you're fully vested, what happens? Three patterns to know:
- No acceleration: your unvested equity converts to the acquirer's equity and keeps vesting. If you leave, you walk away from the unvested chunk.
- Single-trigger acceleration: the moment the deal closes, all your unvested equity vests. Rare for rank-and-file; sometimes given to executives.
- Double-trigger acceleration (most common): you get accelerated vesting only if you're terminated or your role is materially changed within a window after the acquisition (often 12 months). Better than nothing, much less than single-trigger.
What is the offer actually worth?
Don't fall for the headline number. "$400,000 in equity over 4 years" can mean very different things depending on how the share price moves and what kind of company you're joining.
RSUs at a public company
Math is roughly: (shares granted ÷ 4) × current share price = your annual equity comp at today's price. This number is fairly real — it's a liquid stock you could sell the day it vests. Apply a personal discount if you don't trust the company's near-term direction (10-30% is reasonable), since you can't sell what you haven't vested yet.
Options at a private startup
Much fuzzier. The recruiter will quote you a number based on the most recent preferred share price — the price VCs paid in the last round. Your options usually have a much lower strike price (the 409A valuation), but they convert to common shares, which sit below preferred in the cap stack.
Translation: in a great outcome, your common shares are worth roughly what the preferred shares are worth. In a mediocre outcome, the preferred holders take their money out first (liquidation preference) and you get what's left — which can be zero even if the company sells for hundreds of millions.
The questions to ask before signing
Ask these in an email and request the answers in writing. "We'll explain it on a call" or "that's confidential" are flags — every line below is standard for any serious offer.
- How many shares are outstanding (fully diluted)? Lets you calculate your % ownership.
- What was the latest preferred share price, and at what post-money valuation? For private-company options.
- What is the current 409A / fair market value? This sets your strike price.
- What is the vesting schedule, and is there a cliff?
- What happens to my unvested equity if I am laid off, leave, or the company is acquired? Ask about double-trigger acceleration explicitly.
- What is the post-termination exercise window?
- What is the typical refresh grant for someone at my level after the first year?
- Are early exercise or 83(b) elections allowed?
- What are the liquidation preferences on the preferred stock above me?
If you're at a private startup
A few extra concepts that will save you from surprises:
Dilution
Every time the company raises a new round, your percentage of ownership shrinks. A 0.1% grant today might be 0.05% by exit if the company raises three more rounds. This isn't bad — the pie grew — but the number you signed up to is not the number you'll own. Ask what the planned dilution is over the next 18-24 months.
Liquidation preferences
Preferred shareholders (the VCs) get their money out first in any sale. "1x non-participating" means they get their investment back, then the rest goes to common holders. "1x participating" means they get their money back AND a slice of what's left. "2x participating" is brutal for common holders; you should know if it's in your cap table.
Early exercise + 83(b)
Some companies let you exercise options before they vest. If you do this and file an 83(b) election with the IRS within 30 days, you start the clock on long-term capital gains immediately and pay tax on a tiny number now (the spread between strike and current FMV, often zero). The risk is real: you're paying real money for shares that may end up worthless. Worth doing only if (a) you can comfortably lose the money and (b) you genuinely believe in the upside.
If you're at a public company
Refresh grants are the real number
Your initial 4-year grant is a starting position. By year 2, your annual income from refreshers usually exceeds the annualised value of your initial grant. Ask: what's the typical refresher at my level, and is it merit-based or automatic?
Trading windows and blackouts
Public-company employees can usually only sell during open trading windows (often a few weeks per quarter, after earnings). Senior people can set up 10b5-1 plans — pre-scheduled sales that automatically execute, even during blackouts. If a chunk of your wealth is tied to one stock, a 10b5-1 is the difference between disciplined diversification and emotional decisions.
Concentration risk
If 60% of your net worth is in one company's stock, you are taking a bet — and you're paid a salary by the same company, so the bet is doubled. The boring move is to sell vested RSUs as they vest and diversify. The exciting move is to hold for the upside. Both are legitimate; pick one deliberately.
Tax, briefly (and a warning)
Equity tax is country-specific, time-sensitive, and easy to get wrong. The headlines:
- RSUs: taxed as ordinary income when they vest. Most companies withhold a flat percentage (often 22% in the US), which is usually less than your real bracket — you may owe more at year-end. Set aside cash.
- NSOs: ordinary income tax on the spread between strike and FMV when you exercise.
- ISOs: can qualify for long-term capital gains, but trigger Alternative Minimum Tax based on the spread at exercise. People owe huge AMT bills on options that later went to zero. Run the numbers before exercising anything large.
- UK EMI: favourable treatment if you and the grant qualify. Non-EMI options don't get the same break.
- Sale: capital gains apply to any appreciation between vest/exercise and sale.
When to negotiate equity instead of base
Equity is often more flexible than salary, especially at private companies where base bands are rigid. If they cap your base, ask for: a larger initial grant, a sign-on equity grant that vests over 2 years (closes the year-1 gap), early refresher eligibility, or a one-time sign-on cash bonus to bridge the gap. Refreshers are easier to approve mid-cycle than base raises — a written commitment to a refresh in 12 months is worth real money.