Understanding the Basics of Equity
Common Types of Equity Awards
Incentive Stock Options (ISOs)
Non-Qualified Stock Options (NSOs)
Restricted Stock Units (RSUs)
The Mechanics of Vesting Schedules
- The Cliff: This is a waiting period, usually one year, before any equity vests. If you leave before the cliff, you receive nothing.
- Monthly Vesting: After the cliff, equity usually vests in equal monthly increments for the remaining three years.
- Acceleration: Some agreements include acceleration clauses that allow equity to vest faster if the company is acquired or the employee is terminated without cause.
Evaluating the Value of Your Offer
Tax Implications and Exercise Strategies
Negotiating Your Equity Package
- Percentage Ownership: Ask what percentage of the fully diluted share count your grant represents.
- Exercise Window: If you leave the company, how long do you have to buy your vested shares? The standard is 90 days, but some companies offer extended windows.
- Early Exercise: Can you buy your unvested shares early to start the capital gains clock? This is often done via an 83(b) election.