How to value the stock options in your startup job offer in 2025
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Editor’s note: A version of this question originally appeared on Reddit and has been updated for the 2025 tax year.
After working as a contractor for two years, the startup I work for wants to convert me to a full-time employee. In my offer letter, they proposed a $20,000 per year salary reduction in exchange for $80,000 in stock options that would vest over three years, which raises questions about how to value those options compared with guaranteed cash compensation.
They say there is a good chance the company will be acquired in the next couple of years, and that my stock options will be worth more if that happens. How does an acquisition usually affect employee stock options and common shares? Will I receive a cash payout for any vested shares I own, or will those shares and options typically be converted into equity in the acquiring company instead?
How do startup acquisitions actually work, and what should I look for to tell if this equity offer is truly competitive?
- Anonymous
## How to value the stock options in your job offer
Dear Anonymous,
Congratulations on the job offer and the equity package that comes with it!
Let’s break down your questions one at a time. First up, when you look at your job offer, does it really make sense to accept a lower salary in exchange for stock options, given the risks, tax rules, and potential upside?
Startups offer stock options to employees as a way to align incentives and reward them for helping grow the company. When a startup cannot match cash compensation from larger employers, it may use stock options to offer potential future upside if the company eventually goes public or is acquired at a meaningful valuation.
In general, I urge people to negotiate during the offer stage so the full compensation package, including salary, bonus, and equity, makes sense for everyone involved. In your negotiations, focus on your personal risk threshold: are you comfortable trading some cash salary today for the potential upside of stock options or RSUs in a future liquidity event, or do you need a specific level of guaranteed salary to cover your ongoing expenses and future tax obligations on equity, such as possible AMT exposure on ISOs?
Unfortunately, your second question does not have a clear-cut answer. Every acquisition plays out differently, and what your equity is worth in that scenario will depend on the specific deal terms that your company and the acquiring company negotiate at that time, including how common stock and stock options are treated in the final agreement.
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 at Secfi
Have a question about your stock options or equity offer? Email us at ask@secfi.com