How to Use Your Existing Equity Grants To Maximize the Value of Your New Compensation Package

How to Use Your Existing Equity Grants To Maximize the Value of Your New Compensation Package

March 26, 2024

Once you have received a job offer, that’s when the real negotiations begin. Requesting a higher salary and sign-on bonus is the easy part of the process. Figuring out how to secure the most beneficial equity compensation package is a bit more complicated.

The life stage of the company and the position you are applying for will determine the type and size of your equity grant offer.

Let’s examine the most common types of equity grants first so you can understand how to use any equity grants that you leave behind at your former employer as the basis for negotiations for new equity.


What are the most common equity awards?

  • Stock options

A stock option grant gives you the right to buy company stock at a certain price (the grant price) beginning on a certain date in the future. After your stock options vest, you have the option of exercising the options at the grant price. There are two different types of options—nonqualified and incentive. The main difference lies in the way they are taxed.

  • Restricted Stock Units/Restricted Stock

Restricted stock units (RSUs) and restricted stock represent a transfer of company stock from the employer to an employee, based on a vesting schedule. When RSUs vest, the value of the grants is taxed as ordinary income. Therefore, knowing your vesting schedule allows you to estimate your future income and tax liabilities. RSUs are a bookkeeping entry until the grants vest, while restricted stock offers immediate ownership at the time of the grant.

  • Performance Shares

Performance shares are usually not granted upfront, but rather as part of a long-term incentive plan (LTIP). Performance shares are typically tied to meeting a specific future goal, such as a profit target or total shareholder return relative to the stock market. They are very similar to RSUs in their structure.


How to estimate a compensation package?

To calculate the value of the equity compensation package you are leaving behind, you should consider the forfeit value of your equity grants.

To do this, take inventory of your vested and unvested grants. Please remember, that you are leaving behind much more than your current unvested options and RSUs; in reality, the value is often much higher. Why? The time value of your vested options including the full option value of your current unvested options, as well as the intrinsic value of your restricted shares count. In most cases, the actual forfeit value of the equity you leave behind is considerably higher than just unvested grants.

Because these calculations can get very technical, you may want to seek help from a professional to help you maximize these benefits.

To summarize, consider these 3 steps before you accept a new job offer and negotiate your compensation package:

  1. Take the time to define and prioritize your life goals. If you align your financial planning decisions with your priorities, making decisions about a new offer and equity grants will be easier. Consider your current financial situation and establish clear short-and long-term goals.


  1. Use your current benefits as the basis for compensation negotiations, taking into consideration the entire forfeit value of your existing benefits.


  1. Consider the impact of taxes and consult with a financial advisor and employment attorney to help you negotiate more effectively. This will help ensure you negotiate the best possible compensation package that you can get.

 

To learn more about what is negotiable, who can negotiate, and when to negotiate, please refer to Part 1 of this Blog series on Changing Jobs? Negotiating The Best Possible Compensation Package

For additional information about optimizing your compensation, let’s connect and schedule a call to discuss.