How to Evaluate Stock Options in a Job Offer

Most candidates who receive stock options in a job offer don't know what they're worth — and that's exactly how companies prefer it. A grant of "10,000 options" sounds substantial. It may be worth $400,000, or it may be worth nothing. The outcome depends on strike price, vesting schedule, option type, company stage, and liquidation preferences that are almost never disclosed upfront. This guide gives you a systematic framework to cut through the noise.

What stock options actually are — and what they aren't

Stock options are not shares. They are the right to purchase shares at a fixed price (the strike price, also called the exercise price) at some point in the future. If the company's share price rises above your strike, you profit from the difference. If it doesn't, your options expire worthless.

Two types dominate employment contracts:

Incentive Stock Options (ISOs) are available only to employees in the US. Tax treatment is favourable: if you hold the shares for two years from grant date and one year from exercise, gains are taxed at long-term capital gains rates rather than income tax rates. The catch — exercising ISOs can trigger Alternative Minimum Tax (AMT) even before you sell.

Non-Qualified Stock Options (NSOs or NQSOs) can be issued to employees, contractors, board members, and advisors. The spread between strike price and fair market value at exercise is taxed as ordinary income, immediately, regardless of whether you've sold the shares. This creates real cash-flow risk at private companies where no liquid market exists.

Outside the US, company share option schemes operate under different rules. In the UK, Enterprise Management Incentive (EMI) schemes provide favourable tax treatment — gains above the strike are taxed at capital gains rates rather than income tax, provided conditions are met. HMRC publishes guidance on approved schemes, and the specific treatment depends on whether the scheme is HMRC-approved. In Germany, employee share options are generally taxed as employment income at exercise, though legislative changes in recent years have introduced deferral mechanisms for startup employees under specific conditions.

Understanding which type you're being offered is step one. Ask directly: "Are these ISOs or NSOs?" If the recruiter doesn't know, that's a red flag about the company's HR sophistication.

How to value stock options: the five numbers you need

To estimate what your options are actually worth, you need five specific pieces of information. Most companies will provide these if asked directly. If they won't, treat the equity component as speculative.

1. Number of options granted Say you're offered 10,000 options. Meaningless without the next number.

2. Total shares outstanding (fully diluted) This is the denominator. "Fully diluted" means including all issued shares, all outstanding options, all warrants, and all convertible notes — everything that could become equity. Ask specifically for the fully diluted share count. If a company has 10,000,000 fully diluted shares and offers you 10,000 options, you own 0.1% — before future dilution.

3. The strike price The strike is typically set at the 409A valuation (US) or equivalent independent fair market value at the time of grant. A strike of $1.00 per share when the 409A says the company is worth $1.00 per share means you have no intrinsic value today — your upside is entirely future appreciation.

4. The preferred share overhang Most venture-backed companies issue preferred shares to investors, not common shares. Preferred shares carry liquidation preferences — investors get paid first, often 1x or more their investment, before common shareholders (which is what your options convert to) receive anything. Request the company's most recent cap table summary, or at minimum ask: "What are the liquidation preferences on preferred shares, and at what valuation do common shareholders start participating?" A company that has raised $50M at a 1x liquidation preference requires a $50M+ exit before common shareholders see a dollar.

5. Recent 409A valuation or last funding round price per share The last preferred price per share from a funding round is a ceiling estimate of what sophisticated investors paid. Dividing that price by your strike gives you the current "paper multiple." A strike of $0.50 against a Series B preferred price of $5.00 is a 10x paper multiple — though preferred investors have downside protection that common option holders lack.

For a broader view of how equity fits into your total package, see what is total compensation? — equity is one of four major components, and its weight relative to base salary varies significantly by company stage.

Vesting schedules, cliffs, and acceleration clauses

The standard vesting schedule in most tech companies is four years with a one-year cliff. This means:

• You vest 0% of your options if you leave before 12 months
• At month 12, 25% vest immediately (the cliff)
• The remaining 75% vest monthly or quarterly over the following 36 months

A one-year cliff is standard and reasonable. Cliffs longer than 12 months are unusual and worth pushing back on. Vesting periods longer than four years are also outside the norm for individual contributors, though they sometimes appear for senior hires at later-stage companies.

Two acceleration provisions are worth asking about:

Single trigger acceleration: All or a portion of unvested options vest automatically upon acquisition or change of control, regardless of whether you're retained. Relatively rare for employees below VP level.

Double trigger acceleration: Unvested options accelerate only if both an acquisition occurs and you are terminated or constructively dismissed within a defined window (typically 12–18 months). More common at well-governed companies and meaningfully protects against acquihire scenarios where your options are cancelled.

Your offer letter should specify exactly which acceleration, if any, applies to your grant. If it says nothing, assume neither applies.

Post-termination exercise windows matter too. The default is 90 days after leaving the company to exercise vested options — a tight window that forces employees to either pay exercise costs (plus potential tax) or forfeit vested options entirely. Some employee-friendly companies offer 5- or 10-year post-termination windows. This is a concrete, negotiable term worth raising.

Benchmarking equity against market norms by stage

Equity grants are not standardised, but there are rough market norms by role and company stage. Data from index funds like Index Ventures' Option Plan guide and Carta's compensation benchmarks (aggregated from thousands of US startups) provide a reasonable baseline.

For individual contributors at US venture-backed startups (as of recent surveys):

These are percentage ownership figures on a fully diluted basis. Convert your option count to a percentage before comparing.

For public company roles, options are rare — RSUs (Restricted Stock Units) are the standard equity vehicle, and they behave differently. Unlike options, RSUs have no strike price and no exercise cost; they are shares delivered upon vesting. RSU vs stock options covers this comparison in full.

Base salary benchmarks by country are equally important context. According to ONS ASHE 2024 data, median software developer salaries in London sit around £72,000, with p75 reaching approximately £90,000. BLS OEWS 2024 data shows median software developer salaries in San Francisco–Oakland–Hayward at around $175,000. Equity packages need to be evaluated against what you're being offered in base — a $20,000 base cut in exchange for 0.02% equity in a Series D company is rarely a good trade. Use CompVerdict — total compensation checker to benchmark the base component against official government salary data instantly.

Red flags and negotiation levers

Several terms signal a company that is either poorly governed or deliberately employee-unfriendly:

• No 409A valuation available. Required for US companies issuing stock options. Absence suggests non-compliance.
• Refusing to disclose fully diluted share count. Without this, you cannot calculate your percentage ownership. It is standard information to request.
• Vesting restart on promotion. Some companies reset vesting clocks when employees are promoted. This effectively penalises performance.
• Strike price equal to preferred share price. At early-stage companies, common share 409A valuations are typically 20–30% of the latest preferred price. A strike priced at parity with preferred may indicate the options have been incorrectly priced.

Negotiation levers beyond the number of options:

• Request a lower strike price if the current 409A is stale (valuations must be refreshed every 12 months)
• Ask for early exercise rights, which allow you to exercise options before they vest and start the capital gains holding clock
• Negotiate an extended post-termination exercise window — moving from 90 days to two or three years is increasingly common at well-funded companies
• Request an acceleration clause if none is included, particularly if you're a senior hire

For a complete framework covering base, bonus, and equity together, the full guide to evaluating a job offer walks through all components systematically.

Frequently asked questions

How do I calculate what my stock options are worth?

Multiply your number of options by (current fair market value per share minus strike price per share). This gives intrinsic value. For a private company, use the most recent 409A valuation as a proxy for fair market value. Then apply a discount — 70–90% is common for early-stage companies to account for illiquidity, dilution risk, and the probability the company doesn't exit at or above current valuation. Future value requires assumptions about exit multiple and timeline that are genuinely uncertain.

What is a good equity percentage for a startup employee?

For a senior individual contributor joining at Series A, 0.05%–0.2% fully diluted is a reasonable market range based on aggregated cap table data. For seed stage, 0.1%–0.5% is more typical. Anything below these ranges warrants pushback or negotiation — see negotiating total comp for specific tactics.

What happens to my options if the company is acquired?

It depends on the acquisition structure and your vesting agreement. In an all-cash acquisition, vested options are typically cashed out at the acquisition price minus your strike price. Unvested options may be cancelled, assumed by the acquirer and converted to new options, or accelerated — depending on your contract terms. In a stock-for-stock deal, options may be converted into options on the acquirer's shares. Always ask what happens to unvested equity on change of control before signing.

Should I exercise options before an IPO or acquisition?

Early exercise can make sense for ISOs if the 409A valuation is low, the strike price is low, and you believe the company will exit at a significant premium. The benefit is starting the capital gains holding period earlier. The risk is paying cash for shares in a company that may not exit favourably, and potentially triggering AMT. This is a tax decision that depends on your specific financial situation — consult a CPA or tax advisor who works with startup equity before exercising.

Equity is the component of a job offer that candidates most frequently misunderstand — and the one most likely to be misrepresented through selective framing. Once you've worked through the five numbers above and stress-tested the terms, you'll have a clearer picture of what the options are realistically worth. To benchmark the cash components of your offer — base salary, target bonus, and location adjustment — against official government wage data in under 30 seconds, check your offer at compverdict.com.