Stock Options vs RSUs: How to Evaluate and Negotiate Your Equity

Your offer letter says “10,000 options” or “$160,000 in RSUs vesting over 4 years.” It sounds like a lot. But what is it actually worth, when can you get it, and can you ask for more?

Equity is often the most confusing and most negotiable part of a tech offer. This guide explains how restricted stock units (RSUs) and stock options work, how to put a realistic number on each, and which questions to ask before you sign. It does not tell you whether to buy, hold or sell anything. This is general information, not investment, tax or legal advice; for decisions about exercising options or tax elections, talk to a qualified tax professional or financial advisor.

Stock options vs RSUs at a glance

Most tech equity comes in 3 forms:

• RSUs (restricted stock units): A promise to give you company shares on a vesting schedule. Common at public companies and late-stage private companies.
• ISOs (incentive stock options): The right to buy shares at a fixed price, with potential tax advantages. Available only to employees.
• NSOs (nonqualified or nonstatutory stock options): The same basic right to buy, without ISO tax treatment. Can be granted to employees, contractors and advisors.

Key takeaway: RSUs are lower risk because they have value at any positive share price. Options can be worth more in a big success but can also expire worthless, and you need cash to exercise them. Value them differently.

How vesting works

Vesting is how you earn your equity over time. A very common schedule in tech is 4 years with a 1-year cliff: nothing vests in your first 12 months, then 25% vests at the 1-year mark, and the rest vests monthly or quarterly over the next 3 years. Leave before the cliff and you usually get nothing.

Variations to look for:

• Back-loaded or front-loaded schedules: Some companies vest more in later years, others more in early years. This changes your yearly value significantly.
• Refresh grants: New grants given each year or after reviews, which can keep your equity from dropping off after year 4.
• Acceleration: Some agreements speed up vesting if the company is acquired (“single trigger”) or if you are let go after an acquisition (“double trigger”). More common for executives, but worth asking.
• Double-trigger RSUs at private companies: Shares may vest by time but only settle when a liquidity event happens, such as an IPO or acquisition.

How stock options work: strike price, exercise and expiry

A stock option gives you the right to buy a share at the strike price (also called the exercise price), which is set when the option is granted. At private companies, the strike price is typically based on an independent “409A” valuation of the common stock.

Here is a simple hypothetical example:

• You get 20,000 options with a $2 strike price.
• A few years later, the common stock is valued at $5 per share.
• Exercising all of them costs $40,000 (20,000 times $2).
• On paper, the shares are worth $100,000, a spread of $60,000.

That spread is not cash. At a private company you may not be able to sell the shares for years, and the value could fall. With NSOs, the IRS treats the spread at exercise as income, so you may owe tax on money you cannot yet spend. With ISOs, the IRS says you generally do not include income at exercise for regular tax, but the exercise may affect the alternative minimum tax (AMT). To get favorable ISO tax treatment when you sell, IRS Publication 525 says you must hold the stock until the later of 2 years after the grant and 1 year after you exercise.

Expiry matters. Options typically expire 10 years after grant, and many plans give you only a short window, often around 90 days, to exercise vested options after you leave. Under IRS rules, ISO status generally requires that you were an employee within 3 months before exercise, which is why that window is common. Some companies offer extended exercise windows; this is a valuable term to ask about.

Early exercise and 83(b). Some startups let you exercise options before they vest. If you do, you may be able to file a Section 83(b) election, which must reach the IRS within 30 days of receiving the stock, with no extensions. It can reduce taxes if the company grows, but you risk paying for shares that become worthless. Get tax advice first.

How RSUs work

RSUs are simpler. When a batch vests, the company delivers shares to you. The value of those shares is generally treated as ordinary income at that point, and companies usually withhold some shares or cash to cover taxes. After that, any change in price when you sell is generally a capital gain or loss.

Things to check:

• Withholding rate: Default federal withholding on supplemental wages may be lower than your actual tax rate, which can leave you owing at tax time.
• Grant value vs share count: Offers often state a dollar value converted to shares at a recent average price. Ask which price and date were used.
• Private company RSUs: If they only settle at a liquidity event, they may have no near-term cash value.

How to put a value on an equity grant

You cannot predict the future, but you can compare offers sensibly.

Public company RSUs: Divide the grant value by the vesting years to get an annual number. Some people apply a discount, for example valuing it at 70 to 80% of face value, to account for share price swings.

Private company options: Gather these numbers:

1. Number of options and the strike price.
2. Total fully diluted shares outstanding, so you can calculate your ownership percentage.
3. The latest 409A value and the latest preferred share price from funding rounds (they are different).
4. The company’s stage, funding and runway.

Ownership percentage is often more meaningful than share count. 20,000 options means very different things at a company with 10 million shares versus 500 million shares.

Many people treat early-stage startup options as a lottery ticket with uncertain value and refuse to accept a base salary they cannot live on in exchange for them. Our guide to evaluating a tech job offer shows how to put equity next to salary, bonus and benefits in one worksheet.

Questions to ask before you accept

Ask the recruiter or hiring manager for written answers to:

1. Is the grant RSUs, ISOs or NSOs?
2. How many shares or units, and what price was used to convert the dollar value?
3. What is the vesting schedule and is there a cliff?
4. Do you give annual refresh grants? How are they decided?
5. For options: what is the strike price and the latest 409A valuation?
6. How many fully diluted shares are outstanding?
7. How long do I have to exercise vested options after leaving?
8. Is early exercise allowed?
9. What happens to unvested equity if the company is acquired?
10. Have there been tender offers or secondary sales that let employees sell shares?

A company that will not share basic numbers like total shares outstanding makes it very hard to value your grant. That is useful information in itself.

How to negotiate equity

Equity is often more flexible than base salary because it comes from a different budget and does not cost the company cash today. Approaches that work:

• Anchor on total compensation. If base salary is capped by the level band, ask whether equity can close the gap.
• Use competing offers carefully. Share the structure honestly, for example “my other offer includes $X per year in RSUs.”
• Ask for more shares, not just a different price. You usually cannot change the strike price, but you can ask for a larger grant.
• Negotiate terms, not only amounts. A longer post-termination exercise window, early exercise rights or a sign-on RSU grant can be worth a lot.
• Ask about a sign-on bonus to make up for unvested equity you are leaving behind at your current job.

For the scripts and timing of a counteroffer, see our guide on how to negotiate a tech salary. Already employed? You can also ask for a refresh grant as part of asking for a raise.

Where to start: a 5-step equity review

1. Identify the type: RSU, ISO or NSO, and public or private.
2. Get the numbers in writing: shares, price, total shares outstanding, vesting schedule.
3. Calculate an annual value: grant value divided by vesting years, discounted for risk.
4. Check the exits: exercise window, liquidity events and what happens if you leave or are laid off. Our tech layoff plan covers what to check if that happens.
5. Book tax advice before exercising options, filing an 83(b) or selling a large block of shares.

If terms like “fully diluted” or “liquidity event” are new, our glossary has quick definitions.

Conclusion

RSUs and stock options can both be meaningful parts of your pay, but they carry very different risks. RSUs keep value at any positive share price and are taxed when they vest. Options need the stock to rise above the strike price, cost money to exercise and come with tax and deadline traps. Get the facts in writing, value the grant conservatively, negotiate the terms as well as the amount and get professional advice before any big tax decision.

Sources

• IRS Topic No. 427: Stock options — tax treatment of ISOs, ESPP options and nonstatutory options
• IRS Publication 525: Taxable and Nontaxable Income — ISO holding periods, employment requirement and restricted property rules
• IRS Form 15620: Section 83(b) Election — how and when to file an 83(b) election