Equity Compensation in Offers
While not a required component, equity compensation is increasingly common in job offers within the technology sector. As a part of your compensation package, stock benefits and equity have the potential to increase the value of your total offer and provide an added incentive. If your offer includes equity it is best to consult with a financial advisor to understand the true value and risks of what is being offered. Here are some definitions to consider as you evaluate stock options in your job offer.
Stock Options (such as ISOs, NSOs):
Stock options give you the “option” to purchase shares in your company’s stocks at a predetermined price, also known as a strike price. If your company is performing well, the strike price will be lower than its fair market value by the time your options vest. This means you could buy your company stocks for a lower price and sell them at the higher value.
ESPP (employee stock purchase plan):
ESPP refers to buying company stock at a pre determined discount. You would contribute to the plan through payroll deductions which build up between the offering date and the purchase date. At the purchase date, the company uses your accumulated funds to purchase stock in the company on your behalf.
RSUs (restricted stock units):
Unlike stock options, you don’t have to buy RSUs. Once they vest they are yours. You can sell them and make money. Restricted stock units (RSUs) are the most common type of equity compensation and are typically offered after a private company goes public.
Considerations:
Not only is the type of equity important to evaluate, but also consider your current financial situation. Since equity isn’t cash-in-hand if your current financial needs require a more immediate compensation type, equity may not be as valuable for the short term. Taxes are also handled a little differently depending on your options. Check with your tax professional to understand the details and potential tax implications. If you have questions about your equity compensation, don’t hesitate to contact your employer to ask them. This Candor.Co article provides insight on tech compensation and equity/stock options as you evaluate (and potentially negotiate) your offer.
This information is intended for educational purposes only and is not considered financial advice. Please consult with a financial advisor when making assessments and decisions. For free financial education, set up a meeting with The Student Wellness Center Scarlet & Grey Financial to discuss basics, budgeting, and goals.
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