How should I value the stock options in my job offer?
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Editor's note: A version of this question originally appeared on Reddit.
After working as a contractor for two years, the startup I’m working for wants to convert me to full-time. In my offer letter, they offered me a $20,000/year salary cut, but $80,000 in stock options that I’d vest over three years.
They say there’s a good chance that they’ll be acquired in the next couple years, and that my stock options will be worth more. How would that work? Will I get some kind of cash payout for owning the shares, or will my shares get converted into shares of the company doing the acquisition?
How do acquisitions work, and does this sound like a good offer?
- Anonymous
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Dear Anonymous,
Congratulations on the job offer!
Let’s break down your questions a bit more, and focus on them individually. First up, does it make sense to accept a pay cut in favor of stock options?
Startups offer stock options to employees as a way to incentivize them to work harder and grow the company. In some cases, startups may not be able to compete on salary, so they offer stock options as a promise of future gains if the company experiences a successful exit.
In general, I urge people to negotiate during the offer stage to land on a compensation package that makes sense for everyone involved. In your negotiations, focus on your risk threshold — do you want to forgo salary now for potential gains in the future, or do you need a specific salary to cover your personal finances?
Unfortunately, your second question is impossible to answer — every acquisition is different, and the terms of the acquisition (if your company gets there) will be subject to the negotiations between your company and the acquiring company.
I’ve seen acquisitions where there’s an accelerated stock option vesting schedule (and acquisitions where there wasn’t), acquisitions where the acquiring company paid cash for exercised stock options, and others where they offered a stock swap, converting shares from the old company into the new company. Some acquisitions offer a mix of cash and stock, or new grants of stock options that are tied to performance goals being met.
It really depends on what happens at the negotiating table if/when an acquisition occurs.
- Vieje Piauwasdy, Director of Equity Strategy, Secfi
Do you have a question about your stock options? Email us at ask@secfi.com