Everything You Need to Know About Stock Options and RSUs

While switching jobs or even considering a new job offer, one has to understand what the different kinds of equity compensation are.

Stock options allow an employee to purchase shares in the company and go through a lock-in period of a certain number of years before the shares are buyable to them.

• Stock options don’t need any upfront money from the employees, and if the company performs well over the years, they gain substantially.
• If the company stock dips, the stock options become worthless.

• Similar to salary negotiation, employees can negotiate equity compensation while switching their job.
• Employers prefer giving stock over salary, as stock compensation is subjective to the performance of the company.
• Some senior-level positions also see a percentage of salary provided in RSUs every month.

• One has to evaluate while agreeing to take equity compensation, as having too much in one basket is risky.
• Keep the balance between cash savings and stocks/bonds using a ratio according to your risk appetite, diversifying your investment every year.
• During the time of vesting your stocks, ensure that they are not more than 10 percent of your total investment portfolio.

• Consider the tax efficiency of buying and selling stocks options provided by the employer, by consulting your accountant.
• Sell the company stock using the Employee Stock Purchase Plan(ESPP) which usually entitles you to the discounted price.