Why don’t candidates get more information about stock options?
Editor’s note: A version of this question originally appeared on Reddit.
Stock options allow you to buy a stock at a fixed price, regardless of future movement of that stock. So why do so many job offers from private companies say something like “you get x number of stock options” without specifying the details of those options?
Isn’t that basically like saying, “We are letting you buy our stock in the future!” Like, OK? At what price though?
- Anonymous
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Dear Anonymous,
Recruiters working at startups need to do a better job explaining the value of employee equity when they’re extending offers to candidates. But they’re employees just like you and me, and often are not equipped or educated on how to explain equity.
That’s why we’re working with startups to help empower their HR teams to better explain equity at the offer stage.
We know that recruiters and HR teams want to be able to explain the equity portion of compensation packages better. They believe that it will create higher acceptance rates because candidates will fully understand the value of their compensation package, and because it’s also indicative of a supportive and transparent company culture, which can lead to higher employee engagement. As startup employees ourselves, we believe that too.
To illustrate this problem, consider the equity section of a real offer letter that a startup employee recently sent us:
“Stock Option. Subject to the approval of the Company’s Board of Directors, you will be granted an option to purchase 15,550 shares of the Company’s Common Stock (the “Option”). The exercise price per share of the Option will be determined by the Board of Directors when the Option is granted. The Option will be subject to the terms and conditions applicable to options granted under the Company’s Stock Plan (the “Plan”), as described in the Plan and the applicable Stock Option Agreement. Subject to the terms of the Plan and Stock Option Agreement, the Option will vest over 4 years; 25% of the total grant will vest after 12 months of continuous service, and the balance will vest in equal monthly installments over the next 36 months of continuous service.”
What type of stock options is the company offering, and at what strike price?
Savvy candidates know to ask these questions during initial salary negotiations, but for people just starting in their career, or who have never earned pre-IPO stock options, there often isn’t enough information in an offer package for them to fully understand the value of the equity they’ll earn.
That’s one of the big reasons why we see so many questions from people who work for several years in a job, but are surprised when they learn they need to purchase their stock options on their way out the door — nobody at the company told them how stock options work.
You should work with your recruiter to understand (at a minimum), the type of stock options you’re earning and their strike price. It’s never too early to build a plan for your stock options, and don’t forget to include taxes in your plan. Good luck on your job search!
- Vieje Piauwasdy, Senior Director of Equity Strategy, Secfi
Do you have a question about your stock options? Email us at ask@secfi.com