Question 1

What is the fundamental difference between stock options and RSUs?

Accepted Answer

Stock options give you the RIGHT to buy shares at a fixed price (the "strike price") after vesting. You only make money if the stock price exceeds the strike price. RSUs are actual shares (or cash equivalent) that convert to ownership when vested, worth whatever the stock price is at that time. With options, you have upside only if stock appreciates; with RSUs, you have value at any stock price above zero.

Question 2

Which is more valuable: stock options or RSUs?

Accepted Answer

RSUs are typically more valuable because they have guaranteed value. If you receive 100 RSUs worth $100 each, you'll have $10,000 of value when vested. If you receive 100 options at a $100 strike price and the stock only reaches $105, you gain only $500. However, if stock appreciates dramatically (e.g., to $500), options provide much more upside. At early-stage startups, options can be far more valuable; at mature companies, RSUs are usually better.

Question 3

What are the tax implications of each?

Accepted Answer

RSUs: Taxed as ordinary income when vested (like salary). If RSU is worth $10K when vested, you owe income tax on $10K. Stock options: Depends on type. ISOs (Incentive Stock Options) can have favorable tax treatment if held long enough. NSOs (Non-Qualified Options) are taxed as ordinary income when exercised. RSUs are simpler to understand tax-wise; options require more strategic planning.

Question 4

What about vesting, cliffs, and acceleration?

Accepted Answer

Both stock options and RSUs use the same vesting structure: a 4-year vesting schedule with a 1-year cliff. No equity vests in Year 1; if you leave before the cliff, you lose everything. After the cliff, equity vests monthly/quarterly. Acceleration clauses (vesting all equity upon acquisition or job loss) apply to both types equally.

Question 5

How do I negotiate for better options or RSU terms?

Accepted Answer

For options: ask for (1) lower strike price (though usually set at grant), (2) accelerated vesting (6-month cliff instead of 1-year), (3) extended exercise window (7+ years instead of 90 days after leaving). For RSUs: ask for (1) larger grant, (2) shorter vesting cliff, (3) acceleration clauses. Also ask: which type does the company prefer? Sometimes negotiating FOR RSUs instead of options (or vice versa) is easier than negotiating the terms.

Question 6

At a startup vs. a big company, which should I prefer?

Accepted Answer

At startups: options can be far more valuable if the company succeeds (10x+ returns). But startups often fail (90%+ failure rate). At big companies: RSUs are usually worth more because the stock is stable and liquid. General rule: at early-stage startups with high growth potential, options can be better. At mature companies, RSUs are simpler and more predictable.

Stock Options vs RSUs: Which Equity Grant Is Better?

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