Equity Grant Valuations: RSUs, Options, and How to Value Them

The four main equity grant types

RSUs (Restricted Stock Units)

Most common at established tech employers and increasingly at traditional employers. RSUs are a promise to deliver shares at vesting dates, typically over 3-4 years. At vesting, the recipient receives shares worth the then-current market value, which is taxed as ordinary income.

How to value RSUs at grant: take the grant value (number of shares × current share price) and divide by the vesting period to get annual equivalent. A 1,000-share RSU grant at $200/share = $200K total, $50K annual over 4 years.

The risk: share price can change dramatically. Your $50K annual estimate at grant could become $25K (if share price halves) or $100K (if it doubles). For volatile or early-stage companies, this risk is substantial.

ISOs (Incentive Stock Options) - US-specific

Options to purchase shares at a fixed "strike price." If the share price exceeds the strike at exercise, you can buy at strike and sell at market for the difference. ISOs have favorable tax treatment in the US: long-term capital gains rate if held appropriately, with no tax at exercise (only at sale).

How to value ISOs at grant: more complex than RSUs. Standard approach uses Black-Scholes or simplified "fair value" calculations. A common rough estimate: ISO value = 25-40% of underlying share value at grant. So 1,000 ISOs at $10 strike with $10 current share price = roughly $2,500-4,000 of compensation value, not $10,000.

NSOs (Non-qualified Stock Options) - Globally common

Similar mechanics to ISOs but without the US tax preferences. At exercise, the spread (market price minus strike) is taxed as ordinary income. NSOs are the global default for stock options outside the US.

Same valuation approach as ISOs but with less favorable tax. The "in-the-money" value at exercise is fully taxable as ordinary income, like salary.

Restricted Stock (typically at early-stage startups)

Actual shares granted with vesting restrictions. Tax timing depends on jurisdiction-specific elections (83(b) in the US). At very early-stage startups, restricted stock can have minimal current value but significant upside if the company succeeds.

Phantom Equity / Cash-Settled Long-Term Incentives

Used where actual equity is impractical (private companies in jurisdictions where stock plans are complex, large established employers without public stock). Phantom equity pays cash equivalent to what equity would have paid. Taxed as ordinary income at payout.

The risk-adjusted value approach

Grant-date value (number of shares × current price) overstates equity value for volatile or early-stage equity and may understate it for stable growth equity. A risk-adjusted approach considers:

• Probability of vesting: What's the chance you'll still be at the employer when the grant vests? For senior hires, often 70-85%. For junior hires, often 50-70%.
• Probability of value: For public companies, current share price is the best estimator. For pre-IPO companies, apply a substantial discount (often 50-70% of paper value) to reflect liquidity and exit risk.
• Distribution of outcomes: Public-company equity has a relatively narrow expected outcome distribution. Pre-IPO equity has a barbell distribution: high probability of low value, low probability of very high value.

For comparison purposes, use grant-date value adjusted by these factors. For decision purposes, model multiple scenarios (high, expected, low) and consider whether you can afford the downside scenario.

Country-specific tax treatment

United States

RSUs taxed as ordinary income at vesting. ISOs have favorable long-term capital gains treatment if held 1+ year from exercise and 2+ years from grant. NSOs taxed as ordinary income at exercise. State taxes apply on top of federal (California, New York are notable for high state taxes on equity).

United Kingdom

RSUs taxed as ordinary income at vesting plus National Insurance contributions. EMI (Enterprise Management Incentive) options have favorable tax for qualifying employees of qualifying companies — substantially lower tax burden than standard options.

Germany / EU general

Generally taxed as ordinary income at vesting (RSUs) or exercise (options). Germany has favorable treatment under certain conditions for "non-cash compensation" that can defer tax. France has tax-favored "BSPCE" structures for startups.

Singapore / Hong Kong / UAE

Generally lower overall tax burden than US/EU, so equity has higher after-tax value at comparable grant levels. Singapore has favorable treatment for certain equity structures. Dubai (0% income tax) is the most favorable jurisdiction for equity-heavy compensation.

India / Philippines / emerging markets

Tax treatment varies and is sometimes complex for foreign-employer equity. Recipients in India, Philippines, and similar markets often have additional reporting obligations and may face double-taxation challenges. Consult country-specific tax professional for grants from foreign employers.

Vesting strategy

Equity vesting schedules significantly affect realized value. Common patterns:

• 4-year graded vesting, 1-year cliff: Standard US tech pattern. Nothing vests in the first year, then 25% at the 1-year cliff, then monthly or quarterly for the next 3 years.
• 4-year graded vesting, no cliff: More employee-friendly. Vesting starts immediately on a monthly or quarterly basis.
• 3-year graded vesting: Common at non-US employers and some US traditional employers.
• Performance vesting: Vesting tied to specific company or individual performance milestones. Adds risk.
• Cliff vesting (100% at end of period): Used at some traditional employers. High risk of forfeiture.

Common equity valuation mistakes

• Counting unvested grants at full value: Unvested equity isn't yours yet. Discount it by probability of vesting based on your expected tenure.
• Comparing public RSUs to pre-IPO options at same paper value: Pre-IPO equity should be discounted 50-70% for liquidity and exit risk.
• Ignoring refresh grants: Many tech employers issue annual "refresh" grants on top of initial sign-on grants. These extend the effective vesting beyond the initial cliff and significantly affect long-tenure value.
• Not understanding net vs gross share counts: RSUs often have automatic share-selling for tax withholding. Your net share count at vesting may be 60-70% of the gross count.
• Treating equity as guaranteed compensation: Even at public companies, equity is variable. At pre-IPO companies, it's lottery-ticket math. Don't budget life expenses against unvested or pre-IPO equity.

Use the GlobalComp calculator to model equity-heavy offers across countries with proper tax treatment and annualization.