Equity in Lieu of Cash Bonus Forum

[JayDubya]

I am interviewing for an in-house position at a tech company that offers equity instead of a cash bonus. The equity vests over four years, so I wouldn’t fully realize the value of each years equity payment until four years down the road (a little bit vests every six month over those four years).

This isn’t a concept I’m very familiar with and I’m not crazy about the idea of it. I suppose it would be a awesome if the company was acquired by Google or Facebook down the line, but I don’t want to bank on that.

Does anyone have any thoughts here???

[TUwave]

Assuming it’s a private company, you wouldn’t realize the value of the equity until there was some type of event (sale or IPO).

Treat it like a lottery ticket because that’s what it is, could be huge, could be nothing.

[Anonymous User]

I am interviewing for an in-house position at a tech company that offers equity instead of a cash bonus. The equity vests over four years, so I wouldn’t fully realize the value of each years equity payment until four years down the road (a little bit vests every six month over those four years).

This isn’t a concept I’m very familiar with and I’m not crazy about the idea of it. I suppose it would be a awesome if the company was acquired by Google or Facebook down the line, but I don’t want to bank on that.

Does anyone have any thoughts here???

The worth of an equity bonus hinges almost entirely on how you view the company's future. I would seriously press on the company's future goals, outlook, etc. to flesh out just how valuable that equity can be.

As a data point, I joined a company about 13 months before it went public and was awarded a very generous equity signing bonus in lieu of a cash bonus. I was very confident in the future of the company and luckily for me it paid off -- my equity likewise vested over four years but had a one year cliff. At IPO my options were worth just shy of $500k (but of course only about 25% had vested by then). I exercised my 25% that vested at IPO and cashed out for a cool $125k profit, and have options vesting every month now until the four year vesting period is over. This is separate from my annual equity grants as part of my all-in comp. My company's share price is pretty stable and has gone up year over year, so by the time I've exercised all of my signing bonus options in the next 18 months it'll likely be worth more than $650k or so all said and done. I would have been happy with a $30k-$50k signing bonus looking back, so I was very fortunate to get the equity instead of cash.

Of course my experience is just one end of the spectrum, and sometimes equity grants can be worthless. Do your diligence and if you believe in the direction of the company, equity can be a godsend.

[JayDubya]

Wouldn’t it be possible to just immediately cash out my equity as soon as it vests every six months? If so, then it’s not much different from a cash bonus, other than the additional step of selling it, right?

[Ultramar vistas]

Wouldn’t it be possible to just immediately cash out my equity as soon as it vests every six months? If so, then it’s not much different from a cash bonus, other than the additional step of selling it, right?

We don’t know, JayDubya, because you haven’t said whether it’s a public or a private company.

[Anonymous User]

Wouldn’t it be possible to just immediately cash out my equity as soon as it vests every six months? If so, then it’s not much different from a cash bonus, other than the additional step of selling it, right?

If it’s a private company the answer is “no”.

[jhett]

If it's a public company, you can make rough estimates of the vesting payout based on the stock trend (although there's no guarantee of where the stock ends up).

If it's a private company, equity has no real value unless there is an IPO or an acquisition. So as another poster said, it's more like a lottery ticket in this respect.

It's a matter of your appetite for risk. If you don't mind a highly variable payout, go for it. But if you want consistency and aren't wild about the company otherwise, perhaps move on.

[1styearlateral]

What about leveraging your equity in the private company? Can't you borrow against it? Obviously not the same thing as "cashing out."

[Anonymous User]

What about leveraging your equity in the private company? Can't you borrow against it? Obviously not the same thing as "cashing out."

If you can't cash it out yourself there's no way a bank is going to allow you to use an illiquid and uncertain investment like that as collateral

[Anonymous User]

What about leveraging your equity in the private company? Can't you borrow against it? Obviously not the same thing as "cashing out."

If you can't cash it out yourself there's no way a bank is going to allow you to use an illiquid and uncertain investment like that as collateral

Additionally, the terms of the grant/the constituent documents of the company might prevent you from pledging it as collateral without the company’s and/or preferred investors’ consent, and there are securities act issues with transferring/pledging to transfer private company stock.

I’ve seen founders arrange for some kind of minor liquidity from investors (e.g., a cross sale of some small portion of their shares to investors in a financing round to pay down student/business school debt), but rank and file employees are locked in unless a real liquidity event (acquisition or IPO) occurs.

[nealric]

If it's a private company, equity has no real value unless there is an IPO or an acquisition. So as another poster said, it's more like a lottery ticket in this respect.

There is a secondary market for shares in some better known private companies. If the company is a household name, or has clear plans to go public very soon, it's a different situation from a random startup.