What is the difference between RSUs and stock options in a job offer?

Restricted stock units (RSUs) are a promise to give you shares of company stock as they vest — you don't pay anything to receive them. Stock options give you the right to buy shares at a fixed price (the strike price). RSUs always have value as long as the stock price is above zero. Stock options are only valuable if the stock price rises above your strike price. RSUs are taxed as ordinary income when they vest. Stock option tax treatment depends on whether they're incentive stock options (ISOs) or non-qualified stock options (NSOs).

What does a 4-year vesting schedule with 1-year cliff mean?

A 4-year vesting schedule with a 1-year cliff means nothing vests during the first year. On your 1-year anniversary, 25% of the grant vests all at once (the 'cliff'). After that, the remaining 75% typically vests in equal monthly or quarterly installments over the next 3 years. If you leave before the 1-year cliff, you receive nothing from that grant.

How do I calculate the real value of an equity offer?

To calculate the real value: multiply the number of shares or units by the current stock price (for public companies) or the most recent 409A valuation (for startups). Then account for the vesting schedule — you only receive shares as they vest. Finally, subtract estimated taxes: RSU income is taxed at your ordinary income rate (often 35-45% combined federal and state for high earners), while ISO gains may qualify for the lower long-term capital gains rate if you meet holding requirements.

Decoding Your Offer Letter — Financial Guide

A job offer is more than a salary number. Equity grants, bonus structures, retirement matching, health insurance, and purchase plans can add tens of thousands of dollars — or they can be worth much less than they appear. This guide walks through each component so you can evaluate what an offer is actually worth.

Base Salary

Base salary is your guaranteed annual cash compensation, paid in regular installments (biweekly or semimonthly). It's the most predictable part of your offer and the baseline for other calculations — bonuses, retirement match, and disability insurance are typically calculated as a percentage of base salary.

What to check

Pay frequency — biweekly (26 paychecks) vs semimonthly (24). Same annual amount, different per-check math.
Review cycle — When is your first raise eligible? Some companies have annual reviews in January; if you start in November, your first raise might be 14 months away.
Geographic differential — Remote workers may receive location-adjusted salaries. A $150,000 offer in San Francisco buys different purchasing power than the same salary in Austin.

Try it

Enter your base salary in the Take-Home Pay Calculator to see what actually hits your bank account after taxes and deductions.

Signing Bonus

A signing bonus is a one-time cash payment, usually paid with your first paycheck or within your first month. It's taxed as supplemental income — your employer will likely withhold at the flat 22% federal supplemental rate, though your actual tax rate may differ.

Clawback provisions

Most signing bonuses include a clawback clause: if you leave within 1–2 years, you must repay part or all of the bonus. Read the offer letter carefully to find the repayment terms and timeline. A $30,000 signing bonus with a 2-year clawback is effectively a retention tool, not free money.

Annual Bonus

Many offers quote a "target bonus" — typically 10–30% of base salary. The actual payout depends on individual performance and company performance. Ask about:

Target vs range — A 15% target with a 0–30% range means you might get nothing in a bad year or 30% in a great one.
Proration — If you start mid-year, your first bonus is usually prorated. Starting in October with a March bonus cycle means a small first payout.
Guarantee — Some offers guarantee the first year's bonus. This matters if you're joining late in the performance cycle.

Restricted Stock Units (RSUs)

Restricted stock units are a promise to deliver shares of company stock on a vesting schedule. You don't pay anything to receive RSUs — they're granted as part of your compensation. When RSU shares vest, the fair market value on that date counts as ordinary income (W-2 wages), and your employer withholds taxes automatically.

How vesting works

The most common schedule is a 4-year vest with 1-year cliff: nothing for the first year, then 25% at your anniversary, and equal quarterly or monthly installments for the remaining 3 years. Some companies (notably Amazon) use a backloaded schedule: 5% year 1, 15% year 2, 40% year 3, 40% year 4.

Priya's RSU grant

Priya receives an RSU grant worth $200,000 (2,000 shares at $100/share) with a standard 4-year cliff vest. After year 1, 500 shares vest. If the stock is now $120, that tranche is worth $60,000 — but it's taxed as ordinary income. At a 35% combined federal + state rate, her employer withholds $21,000 worth of shares. She nets about $39,000 from the first tranche.

Concentration risk

RSUs tie your income and your investments to the same company. If the stock drops, you lose wealth at the same time job security might be declining. Many financial advisors recommend keeping any single stock below 10–15% of your total portfolio. Selling at vest and diversifying is the most common advice.

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Enter your RSU grant details in the RSU Calculator to model vesting schedule, taxes per tranche, and concentration risk.

Stock Options

Stock options give you the right to buy company shares at a fixed price (the strike price or exercise price) set on your grant date. If the stock price rises above your strike, the difference is your profit. Unlike RSUs, options can expire worthless if the stock price never exceeds the strike.

ISO vs NSO

Incentive stock options (ISOs) — No regular income tax at exercise, but the spread may trigger the alternative minimum tax (AMT). If you hold the shares for 1+ year after exercise and 2+ years after grant, the entire gain is taxed at the long-term capital gains rate (0%, 15%, or 20%).
Non-qualified stock options (NSOs) — The spread at exercise is immediately taxed as ordinary income, subject to federal income tax, FICA, and state tax. Simpler tax treatment, but typically a higher tax bill at exercise.

Marcus's options dilemma

Marcus has 10,000 ISOs with a $25 strike price. The stock is now $75. Exercising all at once creates a $500,000 spread — potentially triggering $100,000+ in AMT. Instead, Marcus could exercise in batches across tax years, staying below AMT thresholds each year. The tradeoff: slower access to shares and more stock-price risk while waiting.

Try it

Use the Stock Options Calculator to compare ISO vs NSO outcomes and model different exercise strategies.

Employee Stock Purchase Plan (ESPP)

An ESPP lets you buy company stock at a discount through payroll deductions. The typical plan offers a 15% discount and runs in 6-month offering periods. You contribute up to 15% of your salary (with an IRS annual purchase limit of $25,000 based on the stock's fair market value at the start of the offering).

The lookback provision

Many ESPPs include a lookback: the purchase price is based on the lower of the stock price at the offering start or purchase date, minus the discount. If the stock was $100 at offering start and $130 at purchase, the lookback means you buy at $85 (15% off $100) for stock worth $130 — a 53% effective discount.

Try it

Use the ESPP Calculator to model your plan's returns with discount, lookback, and tax treatment for qualifying vs disqualifying dispositions.

401(k) Employer Match

The employer match is free money tied to your own retirement contributions. Common formulas: "100% match on first 3%" or "50% match up to 6%." The difference matters. At a $150,000 salary, "100% on 3%" is $4,500/year; "50% on 6%" is also $4,500. But "100% on 6%" would be $9,000.

Check the vesting schedule

Your own contributions are always 100% yours. Employer match contributions may have a vesting schedule — often 3-year cliff or 6-year graded. If you leave before fully vested, you forfeit the unvested match. This is especially important when comparing offers where you might switch jobs within a few years.

Try it

Use the Employer Match Optimizer to see how much free money you'd capture at different contribution levels.

Health Insurance

Employer-sponsored health insurance premiums can vary by thousands of dollars per year between companies. The offer letter usually doesn't spell out the exact cost — you'll need to ask for the benefits summary. Compare:

Monthly employee premium — Your paycheck deduction for medical coverage.
Deductible — How much you pay before insurance kicks in.
Out-of-pocket maximum — Your worst-case annual spending.
HSA eligibility — A high-deductible health plan (HDHP) qualifies you for a health savings account (HSA), which offers triple tax advantages.

Try it

If the plan offers an HSA-eligible HDHP, use the HSA Calculator to model the long-term tax savings.

Putting It All Together

An offer letter might read: "$160,000 base, 15% target bonus, $200,000 RSU over 4 years, 4% 401(k) match, ESPP with 15% discount." That's at least six components with different tax treatments, vesting schedules, and risk profiles. The total compensation calculator gives you one number to compare.

Try it

Use the Total Compensation Calculator to enter every component side by side and see which offer is worth more.

Offer evaluation checklist

Base salary — check pay frequency, review cycle timing, and location adjustments.
Signing bonus — read the clawback clause and plan around the repayment window.
Annual bonus — understand target vs range, proration rules, and guarantees.
RSUs — model the vesting schedule and tax impact. Watch concentration risk.
Stock options — know your option type (ISO vs NSO), exercise costs, and AMT exposure.
ESPP — calculate the effective discount with lookback. Decide sell timing upfront.
401(k) match — check the formula and vesting schedule for employer contributions.
Health insurance — compare premiums, deductibles, and HSA eligibility.