Equity compensation

Why companies pay in equity

Three reasons that stack: cash preservation (young companies pay tomorrow's value instead of today's payroll), alignment (owners think in years, employees paid in equity start to as well) and retention (unvested equity is the strongest golden handcuff there is). For employees the deal is symmetrical: real upside if the company compounds, and pay that can round to zero if it does not.

The instruments, briefly

Shares deliver ownership immediately. Options deliver the right to buy at a fixed strike price, so they carry leverage: worthless below the strike, increasingly valuable above it. Restricted stock units deliver shares on a schedule with no purchase required, which makes them the lower-risk, lower-leverage instrument listed companies favour. Almost everything in an equity package is a variation on those three, wrapped in vesting.

Valuing it like an adult

An equity grant's honest value is a range, not a number. The questions that narrow the range: percentage of the company (not share count), latest valuation and who set it, vesting schedule and cliff, leaver treatment, and dilution expectations from future raises. Employers who provide those answers unprompted are making a real offer; packages where the equity is a vibe should be valued accordingly.