RSUs, Equity, and the Offer Letter: What Your Comp Actually Means

The recruiter says the offer is "$180k base, $400k in equity, target bonus 15%."

That sounds like roughly $280k a year. It is almost certainly not.

Equity is the most misunderstood part of tech compensation, and the misunderstanding costs people real money - in offers they accept, offers they reject, and negotiations they don't even attempt. Here's how it actually works.

RSUs vs Stock Options: Know Which You Have

These are completely different instruments, and which one you're offered tells you a lot about the company's stage.

RSUs (Restricted Stock Units) are a promise of actual shares, given to you on a schedule. When they vest, they're worth whatever the stock is worth that day - the value can't go to zero unless the company does. Public companies and late-stage privates grant RSUs. This is the good kind: it's close to deferred cash.

Stock options give you the right to buy shares at a fixed "strike price." If the company grows, the gap between strike and market value is your profit. If it doesn't, the options are worthless - you're not obligated to buy, but there's nothing to gain. Startups grant options. This is the lottery-ticket kind.

If your offer says RSUs, value it (with care). If it says options, treat it as upside, not salary.

How Vesting Works - and Why Year One Is a Trap

Equity doesn't land in your account on day one. It "vests" over time, and the schedule matters enormously.

The standard schedule used to be 4 years with a 1-year cliff: you get nothing until your first anniversary, then 25%, then the rest monthly or quarterly. The cliff means if you leave (or get cut) before month 12, you walk away with zero equity.

But many companies have moved to back-loaded schedules - something like 5/15/40/40 over four years. Read this carefully. A "$400k grant" on a 5/15/40/40 schedule pays you only $20k in year one, not $100k. Recruiters quote the four-year total because the annualized first-year number is much smaller. Always ask: "What's the vesting schedule, and what does year one actually pay?"

The Four-Year Comp Cliff Nobody Warns You About

Here's the trap that catches mid-career engineers. Your initial grant vests over four years. Around year three or four, it starts running out. If your "refresher" grants haven't kept pace, your total comp drops even as your base creeps up.

This is by design - it's a retention mechanism. To stay flat or grow, you depend on:

Refresher grants - new equity awarded each year, usually tied to performance. The problem: refreshers are granted at the current stock price, often vest over their own four years, and are frequently smaller than the initial grant. A great year might fully replace what's vesting off; an average year won't.

When you're three years in and comp feels stuck, this is usually why. It's also a strong reason to revisit the market - sometimes a new offer is the cleanest way to reset to a fresh four-year grant at current prices.

How to Actually Value a Grant

Run every equity number through these filters before you believe it:

• Public company RSUs: value at today's share price, annualized over the real vesting schedule. Discount nothing for solvency, but remember the price moves both ways.
• Late-stage private RSUs: value at the last 409A / preferred price, then haircut for illiquidity and the risk the IPO slips. You can't sell these until a liquidity event.
• Startup options: the headline value is at the latest round's valuation. Discount hard - most startups don't deliver an exit at that valuation. Ask for the strike price, the latest 409A, total shares outstanding (so you know your real percentage), and the preference stack.

The single most useful question for any private equity offer: "What percentage of the company does this represent, and at what valuation?" A dollar figure without a percentage is marketing.

The Offer Letter Terms That Bite Later

Beyond the headline, scan the fine print:

• Vesting schedule and cliff - covered above; the most important line in the letter
• Refresher policy - is there one? At what cadence? Get the expectation, even verbally
• What happens on a liquidity event - single vs double-trigger acceleration for startup equity
• Post-termination exercise window - for options, do you have 90 days or 10 years to exercise if you leave? 90 days can force a painful tax bill
• 401k match and its vesting - free money, sometimes with its own cliff

Equity Is Negotiable - More Than Base

Here's what people miss: companies often have more room on equity than on base. Base salary affects bands, parity, and every future raise calculation - HR guards it. Equity is a one-time grant from a pool, so a recruiter can frequently add to it with less friction.

If you're negotiating and base won't move, pivot:

"I understand base is fixed at this level. Can we look at the equity component? An additional grant would help bridge the gap to my other offer."

Sign-on bonuses are even more flexible - they come from yet another budget and don't touch parity at all. The order of negotiability is usually: sign-on > equity > base.

The Tax Reality (Briefly)

This isn't tax advice, but know the shape:

• RSUs are taxed as income when they vest, at your full marginal rate, whether you sell or not. Many people get a surprise bill because the default withholding is too low.
• Options have more complex treatment (ISO vs NSO, AMT) - if you have a meaningful options grant, talk to a CPA before exercising. The wrong move here can cost five figures.

The Bottom Line

When you see "$400k in equity," translate it before you react:

1. RSU or option? (deferred cash vs lottery ticket)
2. What's the real year-one number after the vesting schedule?
3. Public, late-private, or early-startup? (and discount accordingly)
4. What's the refresher story for years 3-4?

Do that, and "$280k total comp" resolves into a number you can actually plan your life around.

Equity is where offers look biggest and where candidates lose the most by not understanding the terms. Translate the grant, ask the right questions, and negotiate the line item with the most give.

Want to see what real total comp looks like - base, equity, and bonus broken out by level across 16 companies? gitGood's compensation explorer shows you the actual bands, so you walk into the negotiation knowing exactly what your offer is worth and where the room is.