Receiving a job offer is an exciting moment, but before accepting, it’s important to consider the total compensation package. Beyond salary, stock options represent a chance to own a piece of the company you’re helping to build. This form of equity can lead to greater financial returns and aligns your success with the company’s long-term growth. Understanding how to approach the topic of stock options creates a tangible stake in your future employer’s journey.
Understanding What Stock Options Are
A stock option is the right to purchase a set number of company shares at a predetermined “strike price.” This price is set at the stock’s fair market value on the day the options are granted. If the company’s value increases, you can buy shares at the original, lower price and realize a profit on the difference.
These options are subject to a “vesting schedule,” a timeline for earning them. A common structure is a four-year schedule with a one-year “cliff,” meaning you must stay for one year before any options become available. After the cliff, the remaining options vest monthly or quarterly.
Every grant also has an expiration date, often up to 10 years from the grant date. You must exercise vested options before they expire. If you leave the company, this window to exercise is often shortened to 90 days.
When to Initiate the Conversation
The best time to inquire about stock options is after you receive a formal job offer but before you accept it. This window is your point of maximum leverage. By waiting for the official offer, you demonstrate that your interest in the role is serious and that the company is equally serious about hiring you. This also separates the equity discussion from initial salary negotiations.
Raising the question at this stage frames your request as a thoughtful consideration of the complete compensation package. It ensures the equity component is part of the foundational agreement of your employment, positioning you as a candidate who is thinking about a long-term partnership.
How to Frame Your Request
When you ask about stock options, your tone should be collaborative and show genuine interest, not entitlement. Frame your request as a desire to be a partner in the company’s future success. You are opening a dialogue about your potential long-term alignment with the company.
You can begin by expressing enthusiasm for the offer and the role. A simple way to broach the topic is with a question like, “I am very excited about this offer. I was wondering if equity is a component of the overall compensation package for this role?”
Another way to frame it is by connecting it to your belief in the company’s mission. You could state, “Having learned so much about the company’s vision, I would be very interested in learning about any opportunities to share in that future success through an equity grant.” This language shows you are thinking like an owner.
Evaluating the Equity Offer
To understand the real value of an equity offer, you need more context than the number of options. Your goal is to determine your potential ownership percentage. To do this, ask for the number of stock options being granted, the strike price, and the total number of fully diluted shares outstanding.
Fully diluted shares include all common stock, preferred stock, and all options and warrants that could be converted to stock. You can calculate your potential stake by dividing your options by the total number of fully diluted shares. This percentage is a more meaningful metric than the raw number of shares.
You should also inquire about the company’s valuation at its last fundraising round. This figure gives you a benchmark for the company’s current value. Gathering these facts is necessary to make an informed decision.
Negotiating the Terms
After evaluating the offer, you may find room for negotiation. The most negotiated element is the number of options. If you believe the grant is low for your role or based on market data, you can make a case for a larger amount by linking it to the value you expect to bring.
The vesting schedule can sometimes be adjusted. You might negotiate for accelerated vesting if the company is acquired. This means some or all of your unvested options would vest immediately, allowing you to benefit from the sale.
The strike price, however, is almost never negotiable. It is determined by a formal 409A valuation to establish the stock’s fair market value. Companies cannot legally offer a lower strike price without creating tax complications.
Considering Potential Risks and Alternatives
Approach stock options with a clear understanding of the risks. The main risk is that the options may have no value. If the company fails or never has a liquidity event like an acquisition or an initial public offering (IPO), your shares may be worthless.
Have a plan if a company is unwilling to offer equity or negotiate the terms. You can pivot to discussing other forms of compensation to keep the negotiation moving forward.
Consider asking for alternatives with more guaranteed value. You could request a higher base salary, which increases your certain income. Another alternative is a one-time signing bonus, or you could ask for a guaranteed annual performance bonus.