The short answer
Equity in a job offer is a claim on a future that may or may not arrive. Understanding it means knowing four things: what instrument you are being given, when it vests, what it would cost you to own it, and what event would ever turn it into money. Until you can answer all four, you cannot compare the offer to one that pays cash.
What matters most
- An option is the right to buy shares at a fixed price; a restricted unit is a promise of shares themselves. They behave completely differently.
- Vesting decides when it is yours, and a cliff means nothing at all vests until you pass a defined point.
- Private-company equity has no market. Without a sale or a listing, vested shares can stay unsellable indefinitely.
- Tax treatment varies by instrument, by country and by your own circumstances — take professional advice before exercising anything.
The vocabulary, in the order it matters
Almost every confusion about equity comes from not distinguishing these terms. Learn them once and offer letters stop being opaque.
- Share option
- The right, but not the obligation, to buy a number of shares at a fixed price set when the option is granted. If the shares are later worth more than that price, the difference is your gain. If they are worth less, the option is simply not worth exercising.
- Strike or exercise price
- The fixed price at which your option lets you buy. Normally set at the company's assessed share value on the grant date. It is the number that determines whether the option is worth anything, and it is the one candidates most often fail to ask for.
- Restricted stock unit
- A promise to give you actual shares once conditions are met. There is no purchase and no strike price. Because you are given the shares rather than the right to buy them, they retain some value even if the share price falls, which is why established companies favour them.
- Vesting
- The schedule on which the grant becomes yours. A multi-year schedule with monthly or quarterly increments is common. Unvested equity is not yours and is forfeited if you leave.
- Cliff
- A minimum period before anything vests at all. Leave the day before the cliff and you have nothing; pass it and a chunk vests at once. Ask where the cliff is before you plan anything around a start or leaving date.
- Exercise window
- How long after leaving you have to buy your vested options before they lapse. Historically short windows were standard, and some companies now offer much longer ones. This term can decide whether your equity survives you changing job.
- Liquidity event
- The thing that would let you convert shares into money — usually the company being acquired or listing publicly, and sometimes a secondary sale organised by the company. In a private company, without one of these, shares are a holding rather than an asset you can spend.
The questions to ask before you accept
A grant described only as a number of shares tells you nothing. What follows is the set of questions that turns it into something you can reason about, and every one of them is reasonable to ask.
| Ask this | Why it matters |
|---|---|
| What type of instrument is it? | Options and restricted units behave differently in every respect — cost to acquire, risk profile, tax timing. Nothing else can be assessed until this is answered. |
| How many shares are outstanding in total? | A grant of shares means nothing without a denominator. This is the only way to know what proportion of the company you are being offered, and companies vary in how willingly they answer. |
| What is the strike price, and what valuation is it based on? | It sets the floor your shares must clear before an option is worth exercising, and it tells you the price the company most recently assessed itself at. |
| What is the vesting schedule and where is the cliff? | Determines when any of it is actually yours, and what leaving at a given moment would cost you. |
| What happens to vested equity if I leave? | Ask about the exercise window specifically. A short one can mean funding a purchase within weeks of resigning or losing the grant entirely. |
| What happens in an acquisition? | Terms vary: some grants accelerate, some convert into the buyer's equity, some are bought out. It is written in the plan documents and worth reading before you sign. |
| Have employees ever sold shares here? | The most practical question of all. If the answer is that nobody ever has, treat the equity as a possibility rather than as part of your pay. |
How to weigh equity against cash
The honest position is that equity in a private company is a lottery ticket with better-than-lottery odds and a long time horizon, and that treating it as salary is how people end up underpaid for years. That does not make it worthless — it makes it a different kind of thing, which should be valued differently.
- Decide whether the cash component alone is a package you would accept. If it is not, the equity is being used to close a gap that may never be paid.
- Ask what event would make the equity worth something, and how plausible that event is on a timescale you care about. A company with no realistic route to a sale or listing is offering you a holding, not compensation.
- Find out what leaving would cost. The cliff, the vesting schedule and the exercise window together determine whether the equity survives a change of job, and most people change job more than once.
- Ask what exercising would cost you in cash, if it is options. People are sometimes surprised to find that taking ownership of what they earned requires writing a substantial cheque.
- Establish the tax position with a professional before you act, not after. Timing decisions here can be irreversible, and the rules differ by instrument and by country.
- Then, and only then, compare the offer to the cash-heavier alternative, being explicit with yourself about how much certain money you are giving up for how much uncertain money.
What is and is not negotiable
The plan itself — vesting schedule, cliff, exercise window, the type of instrument — is usually set at company level and applies to everyone. Trying to change it for one hire is generally a dead end, and pushing hard on it signals that you have not understood how these schemes are administered.
- The size of the grant. Usually negotiable, and the main lever available to you. Companies that cannot move base pay can sometimes move equity, because it does not affect this year's cash position.
- The balance between cash and equity. Worth asking directly. Some employers will trade in either direction and simply do not advertise it.
- Refresh grants. Ask whether additional grants are made after the initial one, and on what basis. In companies where they are routine, the initial grant is only part of the picture; in companies where they are not, your equity quietly declines in significance every year.
- Clarity in writing. Always negotiable, always worth having. Get the instrument type, the number, the strike price if applicable, the schedule and the cliff written into the offer letter rather than described on a call.
A reasonable way to think about it
Take the cash part of the offer and ask whether you would be content in that job at that pay if the equity turned out to be worth nothing at all. If the answer is yes, the equity is genuine upside and you can enjoy the possibility. If the answer is no, you are being asked to accept a pay cut in exchange for a claim on an outcome that you do not control, cannot value, and may not be able to sell.
That framing does not tell you what to do — plenty of people take the second deal deliberately and are right to. It does make the decision visible, which is more than most offer letters manage. When you are ready to put both options side by side, the job offer comparison tool keeps the cash and non-cash parts separate rather than blurring them into one number, and evaluating a job offer covers the rest of the package the same way.
Questions people actually ask
What is the difference between stock options and RSUs?
An option gives you the right to buy shares at a fixed price, so it is only worth something if the share price rises above that price. A restricted stock unit is a promise of the shares themselves, with nothing to buy, so it retains value even if the price falls. Options are more common at early-stage companies, units at established ones.
What does a vesting cliff mean?
It is a minimum period you must complete before any of your grant becomes yours. Leave before the cliff and you receive nothing; pass it and a defined portion vests at once, with the remainder continuing on the schedule. Always ask where the cliff sits before agreeing a start date or planning a departure.
Is equity in a private company worth anything?
It is worth something only if an event occurs that lets you sell — typically an acquisition, a public listing, or a company-organised secondary sale. Until then, vested shares in a private company cannot usually be converted into money. Ask directly whether employees have ever sold shares at that company.
Should I take a lower salary for more equity?
Only if the cash portion is a package you would be content with on its own, and only if you understand what would have to happen for the equity to pay. Making that trade is a legitimate choice, but it should be a deliberate bet rather than something you drift into because the share number sounded large.
Do I pay tax on equity?
Generally yes, though when and how much depends on the instrument, the jurisdiction and your own circumstances, and the timing can be significant. This is one of the few areas where paying for an hour of professional advice before you act is reliably worth it, because some of the decisions cannot be undone.
