Master the fundamentals of equity compensation and make smarter decisions about your stock options, RSUs, and more.
Stock options, RSUs, and other equity can be worth thousands—or even millions—but only if you make the right decisions.
Learn the basics of equity types, vesting, and key terminology.
Try our simplified calculators and visualizations to see how equity works.
Get clear explanations for complex concepts without the jargon.
Your equity grant:
Note: This is a simplified example. Real-world scenarios include tax considerations and other factors.
1. What happens when you have a 1-year cliff in your vesting schedule?
2. What is the typical post-termination exercise window for stock options?
3. Which type of equity is taxed at vesting?
Stock options give you the right to buy company shares at a fixed price (strike price) in the future. They're a way for startups to compensate employees while conserving cash.
If you have 1,000 options with a $1 strike price, and the company stock is worth $10, you can buy 1,000 shares for $1,000 and immediately sell them for $10,000, making a $9,000 profit (before taxes).
Vesting is the process by which you earn your stock options over time. Most companies use a 4-year vesting schedule with a 1-year cliff.
With a 4-year vesting schedule and 1-year cliff, you earn nothing for the first year. After one year, 25% vests immediately. Then you earn the remaining 75% monthly over the next 3 years.
When you leave a company, you typically have 90 days to exercise your vested options. After that, you lose them.
If you have 1,000 vested options when you leave, you have 90 days to decide whether to buy the shares at the strike price.
Exercising options can trigger tax events. ISOs can qualify for capital gains treatment if held long enough, while NSOs are taxed as ordinary income.
If you exercise NSOs with a $1 strike price when shares are worth $10, you'll owe ordinary income tax on the $9 spread immediately.
A 409A valuation is an independent appraisal of a private company's stock value, which determines the minimum price at which stock options can be granted.
Your company's 409A valuation is $5 per share. New options must have a strike price of at least $5 to avoid tax penalties.
Dilution occurs when a company issues new shares, reducing the ownership percentage of existing shar...
Companies exit in different ways, most commonly through IPOs or acquisitions. Each exit type has dif...
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