Equity & long-term incentives
RSUs, PSUs, options, vesting, 83(b), deferred comp and clawbacks.
RSUs
Restricted stock units become shares when they vest. They're taxed as ordinary income at vesting, based on the share price that day. Common at public companies.
PSUs
Performance share units vest only if targets are hit (e.g., revenue, TSR), often paying out between 0% and 200% of target.
Stock options
The right to buy shares at a fixed "strike" price. ISOs can get favorable tax treatment but may trigger AMT; NSOs are taxed as income when exercised. Common at startups and growth companies.
Vesting & cliffs
A typical grant vests over 4 years with a 1-year cliff: nothing vests in year one, then 25% at once and the rest monthly or quarterly.
83(b) election
If you receive restricted stock (not RSUs), you may elect to be taxed at grant instead of vesting. You must file within 30 days of the grant; there's no extension.
When you leave
Unvested equity is usually forfeited. Vested options often must be exercised within 90 days of departure or they expire. Check before you resign.
Private companies
Ask for the latest 409A valuation, preferred stock price, total shares outstanding, liquidation preferences and any tender offers. A percentage of the company means more than a number of shares.
Deferred compensation
Non-qualified deferred compensation (Section 409A plans) lets senior employees defer salary or bonus to a future date. Elections have strict timing rules and the money is an unsecured claim on the company.
Clawbacks
U.S.-listed companies must recover incentive pay from executives after certain financial restatements (SEC Rule 10D-1). Many companies apply broader clawbacks for misconduct.
How-to guides
How toEvaluate a startup equity offer
- Ask for: number of options or shares, strike price, latest 409A value, latest preferred price, fully diluted shares outstanding.
- Calculate your ownership percentage: your shares divided by fully diluted shares.
- Ask about liquidation preferences and the total amount raised. They determine what common shareholders get in a sale.
- Check vesting, cliff, acceleration on change in control and the post-termination exercise window.
- Model three outcomes (downside, base, upside) and value the equity conservatively when comparing offers.
How toCalculate a make-whole buyout
- List everything you forfeit: unvested RSUs and options, the current-year bonus, retention awards, deferred compensation.
- Value unvested stock at the current share price and pro-rate the bonus to your expected departure date.
- Present the total with documentation (grant statements) to the new employer through your recruiter.
- Expect the buyout to come as a mix of cash sign-on and new equity, often with a 12 to 24 month clawback.
How toAvoid a tax surprise on RSUs
- Check the withholding rate your employer applies at vesting; it is often lower than your real tax rate.
- Estimate your total income for the year, including vesting RSUs and bonus.
- Make quarterly estimated tax payments or raise your W-4 withholding if needed.
- Decide in advance whether you will sell at vesting (diversify) or hold (concentration risk).
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Information reviewed September 2026. General information only, not legal, immigration, tax or financial advice. Laws change frequently and vary by state and personal situation; consult qualified professionals.