{"id":1357,"date":"2024-12-05T11:01:09","date_gmt":"2024-12-05T11:01:09","guid":{"rendered":"https:\/\/ic-resources-main.local\/stock-options-vs-restricted-stock-units-rsus\/"},"modified":"2025-04-19T11:25:37","modified_gmt":"2025-04-19T11:25:37","slug":"stock-options-vs-restricted-stock-units-rsus-1","status":"publish","type":"post","link":"https:\/\/ic-resources.com\/us\/blogs\/stock-options-vs-restricted-stock-units-rsus-1\/","title":{"rendered":"Stock Options Vs Restricted Stock Units (RSUs)"},"content":{"rendered":"\n

In addition to free fruit and ping pong tables, one of the key incentives that technology companies offer prospective staff is stock. Depending on the evolution of the company these typically come in the form of stock options or RSUs (Restricted Stock Units). Trying to understand the differences and perceived value can be challenging.<\/p><\/div>\n\n\n\n

What is a stock option:<\/strong><\/h2><\/div>\n\n\n\n

Stock options tend to be a good choice for early-stage, high-growth start-ups where stocks are likely to significantly increase in value, particularly as the company scales and also secures future funding rounds. These companies typically do not have revenue and there is a risk, maybe they don\u2019t even have a product. The risks are higher they may never become profitable but in return, if they are successful then the rewards can be much higher.<\/p><\/div>\n\n\n\n

With stock options, employees are given the right to purchase the stock at a finite time for a predetermined price, like a call option. They will be subject to Capital Gains Tax on disposal but if the option scheme is set up efficiently there is no tax to pay until disposal.<\/p><\/div>\n\n\n\n

If you are being offered stock options, in your offer letter, there will typically be a reference to a stock option agreement which will detail the type of stock options you get, how many shares you get, your strike price and your vesting schedule. <\/p><\/div>\n\n\n\n

Your stock option agreement should also specify its expiration date. Vesting<\/a> means you must earn your employee stock options over time. Companies do this to encourage you to stay with them and contribute to their success. A traditional vesting schedule usually includes a \u201ccliff.\u201d A cliff is the first chunk of shares that vest. In this example, you have a one-year cliff, which is standard, this means after one year you can buy a % of your options.<\/p><\/div>\n\n\n\n

Without the cliff, you could accept the offer, work for a month, buy a bunch of the company\u2019s stock, and then quit. If your option grant includes a cliff, it prevents that.<\/p><\/div>\n\n\n\n

The other aspect of your vesting schedule to keep in mind is the total length of the vesting schedule. This outlines how often, and for how long, your shares will vest. Usually, this is over 3 or 4 years.<\/p><\/div>\n\n\n\n

Typically, if you leave the company, your shares will stop vesting immediately and you can only buy shares that have vested as of that date.<\/p><\/div>\n\n\n\n

Example of stock option calculations (note this are approx. figures and should only be used as a guide):<\/strong><\/h2><\/div>\n\n\n\n

100,000 options may sound a lot, but 10,000 options with another company could actually be worth more – it depends on the total shares outstanding. <\/p><\/div>\n\n\n\n

So, in this example if we assume there are 1,000,000 shares outstanding:<\/p><\/div>\n\n\n\n