Understand equity and vesting

Equity can be the largest part of an engineering offer - and the most misunderstood. Before you can negotiate it, you need to know what kind you are getting, when it becomes yours, and how certain its value is.

• RSUs (restricted stock units): you receive shares as they vest. At a public company they are worth the share price, so they have value even if the price falls. Common at large public companies.
• Stock options: the right to buy shares at a fixed strike price. They are only worth something if the share price rises above the strike: value ≈ (share price − strike) × shares. Common at startups. Exercising costs money, and unexercised options often expire a set time after you leave.
• Vesting: equity is earned over time, commonly four years with a one-year cliff - nothing vests in the first 12 months, then 25% vests at once, then the rest monthly or quarterly.
• Schedules vary: some are even (25% each year); some are back-loaded (for example 5%, 15%, 40%, 40%); some front-loaded.

A worked example: a grant of 4,800 shares vesting over 48 months with a 12-month cliff gives you nothing at month 6, 1,200 shares at month 12, 3,000 at month 30 and all 4,800 at month 48.

Private-company equity needs a discount for risk. The shares cannot usually be sold until an acquisition or IPO, which may never happen, and the price in your offer may reflect preferred-stock rounds rather than the common stock you get. Ask for the number of shares, the total shares outstanding (to know your percentage), the strike price, and the most recent valuation - then value it conservatively.