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When you're considering a job offer, especially in tech, you might come across terms like stock options and RSUs (Restricted Stock Units).
Understanding these can help you make a smart decision about your compensation.
Let's break down the basics and learn how to evaluate equity offers from startups versus established companies.
Basics of Stock Options and RSUs
1. Stock Options
Stock options give you the right to buy company shares at a set price, called the "exercise price," after a certain period.
Here's how it works:
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Exercise Price: This is the price at which you can buy the shares, regardless of the market price when you exercise (buy) them.
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Vesting Period: You don’t get all your stock options right away. They vest over time, meaning you earn the right to buy them gradually. For example, if you have 1,000 stock options vesting over four years, you might get 250 options each year.
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Exercising Options: Once your options vest, you can choose to buy the shares at the exercise price. If the market price is higher, you can profit by selling them at the market price.
2. RSUs (Restricted Stock Units)
RSUs are company shares given to you after a vesting period, with no need to buy them.
Here's what you need to know:
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Vesting Period: Similar to stock options, RSUs vest over time. You get the shares once they vest.
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No Exercise Needed: Unlike stock options, you don’t have to buy RSUs. You receive them as part of your compensation.
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Taxation: RSUs are taxed as regular income when they vest, based on their market value at that time.
Evaluating Equity Offers in Startups vs. Established Companies
1. Startups
Startups often offer stock options as part of their compensation package.
Here’s what to consider:
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Potential for Growth: Stock options in startups can be very valuable if the company grows quickly and goes public or gets acquired. The exercise price might be low, and if the company does well, the market price can be much higher.
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Risk Factor: Startups are risky. Many don’t succeed, and if the company doesn’t grow, the stock options might not be worth much.
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Equity vs. Salary: Startups might offer more equity to make up for lower salaries. Consider if you’re willing to take the risk for the potential reward.
Established Companies
Established companies often offer RSUs as part of their compensation.
Here’s what to consider:
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Stability: Established companies are usually more stable than startups. The value of their stock is more predictable, though the potential for massive growth might be lower.
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Immediate Value: RSUs have immediate value once they vest, as you don’t need to buy them. This can be a more secure form of equity compared to stock options.
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Balanced Compensation: Established companies often offer a mix of salary, bonuses, and RSUs, providing a balanced compensation package with less risk.
Comparing Offers
When comparing equity offers, think about your risk tolerance and career goals.
Are you comfortable with the high risk and high reward potential of a startup, or do you prefer the stability and predictability of an established company?
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Personal Goals: Consider your financial goals and job preferences. If you’re early in your career and willing to take risks, a startup might be exciting. If you prefer stability and steady growth, an established company might be better.
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Research: Look into the company’s track record, growth potential, and market position. For startups, consider the founders' experience and the company’s funding. For established companies, check their stock performance and financial health.
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