Understanding Employee Stock Options (ESOP)
Equity is your best tool to attract top talent. Make sure you (and they) understand how it works.
· 1 min read
Competing with Google on salary is hard. Competing on "upside" is where startups win. But offering 0.1% equity means nothing if the candidate doesn't understand strike prices or taxes.
ISO vs NSO
Incentive Stock Options (ISOs) have tax advantages for employees but strict rules. Non-Qualified Stock Options (NSOs) are simpler but taxed as income. Knowing which to grant can save your employees a massive tax bill later.
Exercise Windows
Traditionally, if an employee leaves, they have 90 days to buy their options or lose them. This is often unfair if the cost to buy is high (golden handcuffs). Many modern startups are extending this window to 5 or even 10 years to be more employee-friendly.
Transparency wins deals. Show candidates a calculator: "If we exit at $100M, your options are worth $X."