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Understanding Your Equity Compensation: The Hidden Cornerstone of Your Offer
Gibran Le
5 May 2025
When most people evaluate a job offer, they focus on the salary. But for anyone joining a startup or growth company, equity compensation is often the most significant part of total wealth creation. Unfortunately, it is also the least understood.
What Is Equity Compensation?
Equity compensation gives you partial ownership in the company. The most common types include:
Stock options (the right to buy shares later at a set price)
Restricted stock units (RSUs) (shares that vest over time)
Employee stock purchase plans (ESPPs) (discounted share purchase programs)
Each has different tax implications and liquidity risks. Understanding them is essential before you sign.
Why Equity Is Often Misunderstood
Equity sounds appealing, but without context, numbers can mislead. For example, 1,000 RSUs at a late-stage company might be worth more than 50,000 options at a seed-stage startup. The key is knowing valuation, vesting, and liquidity timing.
How to Evaluate Your Offer
Ask these critical questions before accepting:
What is the company’s most recent valuation and preferred share price?
What percentage of the company will your equity represent after full dilution?
What is the vesting schedule and what happens upon termination or acquisition?
Bottom Line
Equity is your ticket to long-term wealth, but only if you understand the fine print. Before signing, consult a financial advisor who can model different exit scenarios and help you plan around tax exposure. Equity can make you wealthy or frustrated—knowledge is what determines which.