We believe there is a need for a consolidated and shared resource, written by and for people on different sides of compensation decisions, including employees, hiring managers, founders, and students. Anyone can feel overwhelmed by the complex details and high-stakes personal choices that this topic involves. This reference exists to answer the needs of beginners and the more experienced.

Rsu vs stock option reddit

Holloway and our contributors are motivated by a single purpose: To help readers understand important details and their contexts well enough to make better decisions themselves. The Guide does not purport to be either perfect or complete. A reference like this is always in process.

We welcome and will gladly credit your help.

For these situations, see other resources and get professional advice. Our aim is to be as helpful to the beginner as to those with more experience. Having talked with employees, CEOs, investors, and lawyers, we can assure you that no matter how much you know about equity compensation, you will likely run into confusion at some point. Founders or hiring managers who need to talk about equity compensation with employees or potential hires will also find this Guide useful. Negotiating with candidates and fielding questions from candidates and employees requires understanding the same complex technicalities of equity compensation well.

That said, this topic is not simple and we ask that readers be willing to invest time to get through a lot of confusing detail. Seek advice. Much of what you read about equity compensation was written by a single person, from a single vantage point. The authors and editors of this Guide have navigated the territory of equity compensation from the perspective of employees, hiring managers, founders, and lawyers.

Rsu vs stock option reddit

We do believe that the knowledge here, combined with professional advice , can make a significant difference for both employees and hiring managers. One of the difficulties for candidates negotiating equity compensation is that they may have less information about what they are worth than the person hiring them. Companies talk to many candidates and often have access to or pay for expensive market-rate compensation data. While some data on typical equity levels have been published online, much of it fails to represent the value of a candidate with their own specific experience in a specific role.

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However, even without exact data, candidates and hiring managers can develop better mental frameworks to think about offers and negotiations. On the other hand, challenges are not limited to those of employees. Founders and hiring managers also often struggle with talking through the web of technicalities with potential hires, and can make equally poor decisions when making offers. Either over-compensating or under-compensating employees can have unfortunate consequences. In short, both companies and employees are routinely hurt by uninformed decisions and costly mistakes when it comes to equity compensation.

A shared resource is helpful for both sides. Use the search box. Think of it as a mini library of the best content on equity compensation. We also provide mouseover or short tap on mobile for definitions of terms , related section suggestions, and external links while you read. This Guide contains a lot of material.

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Some readers may wish to read front to back, but you can also search or navigate directly to parts that are of interest to you, referring back to foundational topics as needed. Equity compensation lies at the intersection of corporate law, taxation, and employee compensation, and so requires some basic understanding of all three. You might think compensation and taxation are separate topics, but they are so intertwined it would be misleading to explain one without the other.

We cover material in logical order, so that if you do read the earlier sections first, later sections on the interactions of tax and compensation will be clearer. We start with Equity Compensation Basics : What compensation and equity are, and why equity is used as compensation. But before we get much further, we need to talk about what stock is, and how companies are formed. Fundamentals of Stock Corporations covers how companies organize their ownership, how stock is issued, public companies and private companies, and IPOs and liquidity which determine when equity is worth cash.

While not everyone reading this works at an early stage company, those who do can benefit from understanding the role of equity in Startups and Growth. This is good context for anyone involved in a private company that has taken on venture capital. How Equity is Granted is the core of this Guide.

We describe the forms in which equity is most commonly granted, including restricted stock grants, stock options, and RSUs. After these technical concerns, we move on to how you can think about all this in practice. These sections focus on scenarios common to employees and candidates, but are also of likely interest to founders and hiring managers:.

Four Critical Facts About Vested vs Unvested Stocks and Your Divorce

CEOs , CFOs , COOs , or anyone who runs a company or team of significant size should be sure to talk to an equity compensation consultant or a specialist at a law firm to learn about equity compensation plans. Founders looking for an introduction to the legalities of running a company may wish to check out Legal Concepts for Founders , from Clerky, in addition to talking to a lawyer. Founders should also lean on their investors for advice, as they may have additional experience. Executive compensation at large or public companies is an even more nuanced topic, on both sides of the table.

Hire an experienced lawyer or compensation consultant. There are extensive legal resources available on executive compensation. Please read the full disclaimer and seek professional advice from a lawyer, tax professional, or other compensation expert before making significant decisions. Does that make reading through these details a waste of time? Not at all. Important decisions rarely should or can be blindly delegated. This Guide complements but does not replace the advice you get from professionals.

Working with the support of a professional can help you make better decisions when you have an understanding of the topic yourself and know what questions to ask. Companies ranging from two-person startups to the Fortune have found that granting partial ownership in a company is among the best methods to attract and retain exceptional talent.

Rsu vs stock option reddit

In the United States, partial ownership through stock options has been a key part of pay for executives and other employees since the s. Public companies offer executives equity compensation in no small part because of a tax loophole. Unfortunately, the legislation backfired; a loophole made performance-based pay—including stock options—fully tax deductible, thereby creating a dramatic incentive to pay executives through stock options. Generally, equity compensation is closely linked to the growth of a company.

Cash-poor startups persuade early employees to take pay cuts and join their team by offering meaningful ownerships stakes , catering to hopes that the company will one day grow large enough to go public or be sold for an ample sum. More mature but still fast-growing companies find offering compensation linked to ownership is more attractive than high cash compensation to many candidates. With the hope for growth, however, also comes risk. Large, fast-growing companies often hit hard times.

And startups routinely fail or yield no returns for investors or workers. Compensation comes in the forms of cash pay salary and any bonuses and any non-cash pay, including benefits like health insurance, family-related protections, perks, and retirement plans. Company strategies for compensation are far from simple. Beth Scheer, head of talent at the venture fund Homebrew, offers a thoughtful overview of compensation in startups.

Another term you may encounter is total rewards , which refers to a model of attracting and retaining employees using a combination of salary and incentive compensation like equity , benefits, recognition for contribution or commitment like awards and bonuses , training programs, and initiatives to improve the work environment. One common kind of equity is stock, but equity can take other forms, such as stock options or warrants, that give ownership rights.