Equity grants are important in startup recruiting because they can be an attractive component of a job offer, particularly for candidates who are interested in the long-term success of the company. By owning shares in the company, employees have a vested interest in the success of the company and are more likely to work hard to help it succeed. Additionally, equity grants can be a way for startups to offer competitive compensation packages to talented candidates, even if they can't afford to pay high salaries.

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For additional information on employee equity, see Stock Options.

Below is the recommended talk track for recruiters and hiring managers to discuss the equity component of a candidate’s offer package. Equity can be complex. Notes below are designed to simplify the conversation with candidates who may have never received stock options in prior roles. The goal of this conversation is to:

• Explain what equity is;
• Help the candidates to avoid analysis paralysis;
• Focus the candidates’ attention on things they can control; the long-term value of the stock is something they cannot control

Explain stock equity

Stock equity in the company is given to new employees as part of compensation. A stock option is not a share of stock, it’s the right to purchase a set number of company shares at a fixed price. As a startup, the value is low, but as your company grows, the stock equity can be significantly higher.

As an employer, providing employee stock options has several benefits:

• By owning shares in the company, employees have an interest in making it successful.
• Employees have opportunities to make money.
• Employees are invested in the company and care about its outcome.

Below is how to explain stock equity to new employees, what they can expect, what decisions they need to make, and when.

Stock equity and strike prices

Each new employee receives a certain number of company shares in their name. These shares are set at a specific value known as a strike price (set at the company’s fair market value), which is usually low at inception because the company is just getting started. These shares are available for employees to purchase once vested.

Four-year vesting and a one-year cliff

Our standard vesting period is “4 years, 1 year cliff”.

This means it takes four years (the vesting period) before an employee can purchase all of the shares allocated to them. To be eligible, the employee must work for at least a year (one-year cliff) before they can purchase 25% of their shares. Thereafter, the remainder 75% of the original grant vests in equal increments (1/48th) for each month of service. As long as the employee works for the company, the stock continues to vest. The value is determined by the success of the company.