Negotiating stock options in salary
I am considering joining a start-up company and as a part of the compensation package I am offered a certain amount of stock options. How do I evaluate and negotiate this part of the offer, given the rest of the compensation package salary, vacation days, etc.
I'm assuming that when you say that "the rest of the compensation package salary, vacation days, etc. The alternative is that you've been fed the "market rate is lower at a startup" line, which is a falsehood. Usually when you join a startup you accept compensation that is below market rate, and your equity component is essentially used to "make up" the difference. So if you're being offered the full market rate, you're already somewhat ahead of the curve as far as startups go.
It also means that you're less likely to receive a huge amount of equity.
Understanding Your Options- Stock Options Checklist
In terms of negotiations, the major "gotchas" to watch out for are unfavorable vesting, cliff, or dilution terms. In particular, a cliff longer than one year or a vesting schedule longer than 4 years would both be suspect.
And ideally the shares you receive should dilute the same as everyone else's. It's unlikely that you'll be able to negotiate the strike price on your options generally this must be set to whatever the share price happens to be on the date of the grantso focus on the allocation size.
Options packages are difficult to value in tangible terms, as they technically have zero value when they are granted. The simplest way to approach it is to look at how much equity you are being granted, as a percentage of the company.
Assuming no dilution, the "value" of your options package is:. Lastly, and this shouldn't be an issue, but definitely make sure that whatever terms you ultimately work out are included as part of your written employment contract.
It's easy to get burned if you do not. And if that wasn't negotiating stock options in salary enough for you, try this. By posting your answer, you agree to the privacy policy and terms of service.
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Understanding and negotiating stock options offer. Asahi 4 The main things you'll want to ask after are: Share Pool - How many shares currently exist, in total. If pedagang forex yang berjaya know this and your allocation, you can work out the size of the equity stake being offered in terms of percentage of the company.
Strike Price - Since you are receiving options, you'll want to know what the strike price is. Your options only have value if the company's share price goes above the strike price. Vesting Schedule - How you actually receive negotiating stock options in salary of the options. Typically they will vest incrementally often quarterly, sometimes monthly, semi-annually, or annually over a 4 year span. Shorter is better here. Cliff - How long you have to remain at the company before you receive the first tranche of options.
Durations of a quarter to a year are common; during the 'cliff' period you will not receive any options.
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They still accrue in accordance with the vesting schedule during this time, but you receive them all at once when the cliff ends.
Again, shorter is better. Dilution - Do your shares dilute any differently from anyone else's.
Negotiating Stock Option Packages | ylugudivalul.web.fc2.com | ylugudivalul.web.fc2.com
If they do, be sure you understand how. Assuming no dilution, the "value" of your options package is: And one thing to keep in mind if the options are for shares that are already publicly traded--check the current stock price. The only way you make any money is when the strike price is less than the current price. Also, factor in that to avoid paying normal taxes, you'd have to hold the stock for a year to qualify for capital gains rate.
If the stock goes below the strike price in that year you lose money.
Excellent answer, to which I would add two things: Options are not cash, but they can turn into cash if the stars align. Sign up or log in StackExchange. Sign up using Facebook. Sign up using Email and Password. Post as a guest Name.
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