Salary, equity, and how to explain a grant honestly to someone who has never held one.
Employee compensation is usually salary plus equity, typically as stock options — the right to buy shares later at a price fixed today (the strike price).
Options vest, usually over four years with a one-year cliff, and they must be exercised, which normally costs real money.
Because equity is the main way early startups compete with larger salaries, and because it is very widely misunderstood by the people receiving it.
Explaining it badly is a real cost. Someone who believed their options were worth a great deal, and then discovers the exercise cost and the tax treatment, feels misled — and tells others.
How to explain a grant honestly:
'You'd get 10,000 options at a strike price of $0.50. There are 10 million shares outstanding, so that is about 0.1% of the company today — and it will be less after future funding rounds, which is normal.
>
They vest over four years with a one-year cliff, so nothing vests until month 12, then 25% at once, then monthly.
>
To own the shares you have to exercise — buy them at $0.50, so $5,000 for all of them. There may be tax when you exercise and when you sell, and that depends on where you live and the rules at the time.
>
If we sell for $100M these could be worth around $100,000 before tax. If we do not, they are worth nothing. Most startups do not succeed. Please take the salary as the real number and treat the equity as a genuine but uncertain upside.'
That last sentence is the honest one, and it is the one most founders omit. It builds far more trust than an optimistic projection, and it prevents the resentment that follows a disappointing outcome.
⚠ Tax treatment of options varies enormously by country and changes. Tell people to get their own advice; do not advise them yourself.
First-time founders often quote equity as a big-sounding number of shares without the denominator. '10,000 shares' means nothing without knowing the total. Always give the percentage.
The second mistake: presenting a projected value as though it were expected. Most startups fail; equity is a lottery ticket with genuinely good odds compared to actual lotteries, and it should be described that way.
The third: not explaining the exercise cost and the post-departure exercise window — commonly 90 days. Someone who leaves and cannot afford to exercise loses everything they earned, and they will find out at the worst moment.
Find real market data for the role, level and location. Underpaying while claiming otherwise damages trust immediately.
Share counts without the denominator are meaningless and read as evasive.
Including what the exercise would actually cost them in cash.
Commonly 90 days to exercise after leaving. Some companies extend it — that is a real and appreciated benefit.
'Take the salary as the real number.' This builds trust and prevents later resentment.
Rules vary by country and change. Point them to advice rather than giving it.
Every offer that includes equity, and whenever someone asks what their grant is worth.
Do not give tax advice yourself under any circumstances. Explain the mechanics; direct the tax question to a professional.
This is educational information, not tax advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.
Apply this to your own startup in My Full Journey (free account).