A restricted stock unit becomes shares at vest and is worth whatever the shares are worth, which is more than zero unless the company is. An option is the right to buy at a fixed strike price and is worth nothing until the price rises above that strike. Treating a headline option grant as if it were cash is the single most expensive mistake in offer comparison.
Two instruments, very different risk
The offer says equity worth eighty thousand dollars and you have no idea whether that means anything. It depends entirely on which instrument you were granted, and the two get described with the same word in every conversation. One of them is worth something the moment it vests. The other can be worth nothing while the company is doing perfectly well.
Restricted stock units become actual shares on vesting. If the share price falls they are worth less, and unless the company reaches zero they are worth something. That makes them close to deferred cash carrying price risk. You do not have to pay anything to receive them.
Options give you the right to buy shares at a fixed strike price set on the day of the grant. If the market price sits below that strike, they are worth nothing at all, and exercising them costs you money you have to find. A company can grow, hire, ship and thrive while your options remain underwater. Treating a headline option grant as though it were cash is the single most expensive mistake in offer comparison.
Public and private are further apart still
Public company shares have a market price you can look up today and sell into tomorrow. Value them at the current price, then discount for the vesting wait and for the concentration risk of holding your employer’s stock while employed there. That discount is a judgment call and it should not be zero. The instrument is still fundamentally convertible into money.
Private company equity has no market at all. The stated value comes from a funding round that may not repeat at the same price, and the shares may never convert into anything spendable. Valuing private equity at the number written in the offer letter is the most common overvaluation in compensation. It is also the one employers have the least incentive to correct.
The questions that actually price private equity
Ask how many shares you are being granted and out of how many total shares outstanding. A share count without a denominator is not information, and plenty of offers give only the numerator. Then ask what the most recent valuation was and when it was set. A two-year-old valuation in a changed market is a historical fact rather than a price.
Ask what the strike price is against the current preferred share price, and what liquidation preferences sit above common shareholders. That last question decides whether common shares receive anything at all in a modest exit. Employers comfortable with their equity story answer all four readily, because for them the answers are a recruiting asset. Hesitation on any of them is informative in itself.
The exercise problem
Vested options typically have to be exercised within about ninety days of leaving the company. Exercising means paying the strike price for every share you want to keep, in cash, on that timetable. For a meaningful grant that can run to a serious sum. It arrives at the precise moment your income has stopped.
There can also be a tax bill in the same year, even where no market exists to sell into and fund it. That combination is why people forfeit vested equity they genuinely earned over years of work. Find out the exercise cost and the window before you ever need them. It changes both when you leave and whether the grant was worth anything to begin with.
Refresh grants are the part people miss
An initial grant vesting over four years produces a cliff in year five unless refresh grants arrive behind it. Somebody modeling their compensation on the first grant alone is overstating years four onward considerably. Ask what refresh grants have actually looked like for people at your level. It is a factual question about past practice rather than a request for a promise.
The reverse case is worth naming too. Rolling refreshes mean there is always unvested value sitting in front of you, which is the retention mechanism working exactly as intended. That is not sinister and it is worth recognizing when you feel unable to leave. The schedule is doing its job and you can choose whether to let it.
How to put it in a comparison
Public restricted stock units go in at the annualized grant value, discounted for the vesting schedule and for holding a single company’s stock. Public options go in at intrinsic value only, meaning the amount by which the current price exceeds the strike. Anything above that is upside rather than compensation. Treating it as upside is the honest framing.
Private equity goes into a package comparison at close to zero, with the upside noted separately as a bet you are deliberately choosing to take. That is not cynicism about startups and it is not advice against joining one. It is how you avoid accepting a materially lower cash offer on the strength of a number nobody can convert into rent. Make the bet knowingly rather than by arithmetic accident.
Concentration risk deserves a mention
Holding equity in your own employer means your salary and a large part of your savings depend on the same company. If it struggles, both of them fall at the same time. That is precisely the wrong correlation to build a financial life on. It is also the default outcome for anybody who simply holds what vests.
The standard response is to sell vested shares reasonably promptly and diversify elsewhere, rather than holding because selling feels disloyal. Nobody at your employer is tracking whether you sold. That is a personal decision and it is worth making deliberately rather than by inertia. The people who get hurt are usually the ones who never decided at all.
Before signing
Get five things in writing: the grant type, the vesting schedule, the strike price where relevant, the exercise window after leaving, and what happens to unvested equity on acquisition. All five are ordinary requests and all five change the value materially. An offer letter that mentions equity without specifying them is not yet an offer you can evaluate.
Then value the package with and without the equity and see whether the decision changes. If it only works with the equity counted at face value, you are making a bet rather than taking a job. This is general information rather than tax or investment advice, and equity taxation in particular depends heavily on the instrument and your own circumstances.
Common questions
What is the difference between RSUs and options?
RSUs become shares at vest and are worth whatever the shares are worth. Options are the right to buy at a strike price and are worth nothing until the price is above it.
How do I value a grant?
Price it as if the share price never moves, and count only the portion vesting inside the time you expect to stay.
Is private company equity worth anything?
Possibly a great deal, and you generally cannot sell it until a liquidity event. A valuation is a calculation, not a buyer.
When am I taxed?
RSUs are generally taxed as income at vest whether or not you sell. Options differ by type and can create a bill on exercise, which is a question for a tax professional.
Should equity go in the salary comparison?
Keep it beside the comparison rather than inside it, especially when it cannot be sold. It is a different kind of number from cash.
What is the difference between RSUs and options?
RSUs become shares on vesting and retain value unless the price hits zero. Options are the right to buy at a strike price, and are worth nothing if the market price is below it.
How should I value private company equity?
For a package comparison, close to zero, with the upside noted separately as a bet. It has no market, and the stated value comes from a round that may not repeat.
What is the exercise trap?
Vested options typically must be exercised within about 90 days of leaving, costing the strike price plus possible tax — even with no market to sell into.