# Equity compensation

Equity compensation is ownership in a company, most commonly in the form of stock options or restricted stock units, granted to an employee as part of their pay rather than delivered all at once in cash. It typically vests over a set schedule instead of being available immediately.

It's most common at startups and technology companies, where it's often a substantial part of a total offer.

**Equity compensation** — Equity compensation is a form of pay where an employer grants an employee an ownership stake in the company, instead of, or in addition to, cash. The two most common forms are stock options, which give an employee the right to buy company stock at a fixed price in the future, and restricted stock units, or RSUs, which are a promise of actual shares delivered once conditions are met. Both usually vest over a set schedule rather than being available immediately, a common structure being four years with a one-year cliff, meaning nothing vests until the first year is complete and the rest vests gradually after that. The actual value of equity compensation depends heavily on the type of company. At a publicly traded company, RSUs have a clear, tradable market value the day they vest. At a private company, particularly an early-stage startup, stock options are a bet on a future outcome, like an acquisition, that may never happen, and their real value is far harder to estimate than a cash bonus. Employers offer equity partly to align an employee's incentives with long-term performance, and partly because it lets an earlier-stage company compete for talent against larger companies with bigger cash budgets.

Understanding a specific equity grant means understanding a few details: the vesting schedule, the strike price for options versus the current share value, and, for a private company, how illiquid the shares are until an exit event happens. A quoted grant value is only as reliable as the assumptions behind it.

## Frequently asked questions

### What's the difference between stock options and RSUs?

Stock options give the right to buy shares at a fixed price in the future, meaning their value depends on the stock rising above that price. RSUs are a promise of actual shares delivered once vesting conditions are met.

### What does a four-year vesting schedule with a one-year cliff mean?

Nothing vests during the first year. At the one-year mark, a quarter of the grant vests at once, and the rest vests gradually over the remaining three years.

### Is equity compensation from a startup as reliable as a cash bonus?

No, not in the same way. Startup equity depends on a future outcome, like an acquisition, that isn't guaranteed, while a cash bonus, once paid, doesn't carry that same uncertainty.

## Related pages

- [Total compensation](/glossary/total-compensation)
- [Compensation package](/glossary/compensation-package)
- [Browse open roles](/jobs)

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