How to value stock options in a job offer

Consider Devon, a senior backend engineer weighing two written offers side by side on a Monday morning.

Two offers, one Monday: what "$500K in equity" actually pays

Company A (Series C, roughly 800 people, last priced round at a $2.4B post-money): base $210,000, sign-on $30,000, and "$500,000 in stock options" over four years with a one-year cliff.

Company B (public mid-cap, ticker on the Nasdaq): base $235,000, sign-on $20,000, and $180,000 in restricted stock units across four years with a one-year cliff and refresher grants every year.

The headline looks obvious. Company A carries a $145,000 richer equity story on top of a base only $25,000 lower. Company A wins by roughly $120,000 a year, right?

Not close. The two grants are different instruments, and treating them as one number is the mistake candidates make at exactly this stage. How to value stock options in a job offer, once the excitement of the number wears off, comes down to three answers before you compare offers side by side.

Question one — what kind of equity is it (RSU, ISO, NSO, refresher)

Look — the single most decision-relevant question in an equity comparison is what kind of paper you are being offered.

Restricted stock units at a public company are the simplest case. When they vest, you own shares. You owe ordinary income tax on the value at vest, and the shares are yours to sell that day. The Wikipedia entry on restricted stock walks through the tax mechanics if you want the long version. In an offer letter, $180,000 of RSUs across four years is roughly $45,000 a year in gross taxable compensation, or about $27,000 to $32,000 a year in take-home after federal and state.

Incentive stock options at a private company are a different animal. They give you the right to buy stock at a fixed strike price after they vest. If the stock is worth more than the strike, you make the gap; if it is worth less, the option is worth zero. ISOs qualify for long-term capital-gains treatment when you hold the shares long enough after exercise, but they can trigger alternative minimum tax at exercise, which is the tax surprise that eats a lot of first-time exercisers.

Non-qualified stock options (NSOs) are the private-company version without ISO tax treatment. They are taxed as ordinary income on the spread at exercise, then capital gains on any further appreciation. The IRS reference on stock option taxation is the primary source.

The RSU vs stock options in a job offer question comes down to a category difference. An RSU floor is the current share price at vest. An option floor is zero.

Question two — what's the strike, what's the 409A, what's the gap

For any private-company options offer, three numbers determine whether the grant has real value: the strike price, the current 409A valuation, and the last preferred-round price per share.

The strike price is what you pay per share when you exercise. It is set at the current 409A valuation, an independent appraisal the company gets annually to comply with the tax code. If your strike is $2.40 and the last preferred round was priced at $12.00, the "spread" is $9.60 per share. That spread, multiplied by your vested shares, is the paper value of your unexercised grant.

Here is the piece candidates miss. The 409A number is almost always well below the preferred-round price, often 20 to 40 percent below on a Series C and more on earlier rounds. That is how the strike stays low. So when a recruiter tells you your grant is "worth $500,000," ask which number they are multiplying by. Common answers, in order of aggressive-to-realistic:

• Preferred-round price × total shares (the number in the offer PDF)
• 409A × total shares (the paper value the taxman would use)
• Preferred × vested-only shares (the number you would see if you left today)
• Last secondary-market clearing price × vested shares minus strike (the closest to real)

For Devon's Company A offer, the $500,000 figure is almost certainly preferred × total. The realistic take-home if the company holds its current price and Devon stays two years is closer to $180,000 to $220,000 in pre-tax paper, and zero if the company never exits above the preferred price.

Question three — what's the vesting shape (cliff, straight-line, back-loaded)

The standard vesting shape is four years, monthly, with a one-year cliff. That is the reference case. Anything else changes the value in ways the headline number hides.

• Back-loaded vesting (10/20/30/40 across the four years, common at Amazon and a few others) makes years one and two effectively worth less than the straight-line assumption. If Devon leaves at month 24 from a 10/20 back-loaded grant, they take 30 percent of the total, not 50 percent.
• Cliff-only vesting (all shares vest at year four, nothing before) is rare and functionally a four-year retention bond. Treat the value as zero for any exit before month 48.
• Refresher grants, usually annual, rebuild the future value of a package on each merit cycle. Company B grants a refresher every year on the anniversary; by month 24, the vested-and-vesting stack is meaningfully larger than the offer-letter number suggests.

How much are stock options worth in an offer comes down to a plain calculation: (annual vested shares from the initial grant + refresher stack per year) × (realistic price per share) × (tax factor). Run it for the 24-month case and the 48-month case; those are the two decision points that matter.

The two mistakes that make candidates over-price or under-price the grant

The over-pricing mistake: treating a private-company option grant as if it were an RSU. It is not an RSU. There is a nonzero probability, often 50 to 70 percent for early-stage, 20 to 40 percent for Series C, 5 to 15 percent for late-stage, that the shares are worth zero at exit. Multiply your headline number by a real probability of a good exit before comparing it to a public-company RSU number. A $500,000 option grant at a Series C with a 30 percent chance of a strike-clearing exit is worth about $150,000 in expected value. That reframes the Devon comparison entirely.

The under-pricing mistake: ignoring refresher grants. Public-company RSU packages are almost always refreshed on some schedule, annually or on the merit cycle. The offer letter shows the initial grant only. Ask directly: "What's the typical refresher for someone in this level after year one and year two?" A recruiter who will not answer is telling you something. A recruiter who says "roughly 25 to 40 percent of the initial grant per year" is giving you the number you actually need to model.

How to evaluate stock options in a job offer, in one sentence: multiply the vested-at-your-planned-exit-date share count by a realistic exit-price scenario, subtract strike, apply your tax factor, and compare the resulting cash range to the base-plus-bonus gap. To value equity in a startup offer specifically, do the same math and multiply the result by your probability of an exit above the current preferred price. Are stock options in a job offer worth it? Sometimes yes, sometimes zero, the same grant is both, depending on the company.

The last piece is how to negotiate stock options in a job offer. Recruiters expect equity to be negotiated separately from base. The two levers that move: initial grant size (a 25 to 50 percent increase is common for a senior hire with a competing offer), and vesting shape (straight-line instead of back-loaded, or a partial acceleration on change-of-control). Base is where the anchor sits. Equity is where the room is.

For Devon, once the math clears, Company B wins on cash-in-hand at both the 24-month and 48-month marks, and Company A wins only in the top 15 to 20 percent of exit-scenario upside. Which offer is right depends on the reader's runway, risk appetite, and how much of the equity feels like retention pull versus real wealth. But now the question is being asked with the right numbers.

Not the recruiter's headline. The share count vested on your timeline, cleared through strike, taxed at your rate.