Equity 101 for Software Engineer Offers: RSUs, Options, Vesting, and Cliffs

There's a strange asymmetry in how engineers evaluate offers. The base salary gets scrutinized down to the thousand dollars, while the equity component, which is frequently the larger number, gets accepted mostly on vibes. Part of the reason is vocabulary: RSUs, cliffs, triggers, strike prices, and exercise windows are terms most of us encounter for the first time inside a document we're being asked to sign, and the document itself was written by lawyers for other lawyers.

The same caveat applies here as in Negotiation 101. This is a candidate-side guide. Equity plans are designed by founders, boards, and comp teams, and I have never sat in any of those chairs; I've signed grants, read the plan documents behind them, and helped friends decode theirs, and that's the level this article operates at. I also want to say this plainly rather than hide it in fine print: none of this is tax advice. Equity taxation varies enormously by country, state, and personal situation, and paying for an hour with a real tax professional before you exercise options or sell shares is some of the best money you will ever spend.

RSUs vs options

An RSU (restricted stock unit) is a promise of actual shares, handed over on a schedule. At a public company, RSUs behave close to deferred cash: on each vest date the shares appear in your brokerage account, they're worth the market price that day, you owe income tax on that value, and outside of trading blackout windows you can generally sell within days. Among all the flavors of equity, public-company RSUs carry the narrowest error bars.

An option is the right to buy shares later at a price fixed today, called the strike price. Options only become valuable if the company's share value climbs past that strike, which is why they're the usual instrument at earlier-stage startups, where the entire pitch is growth.

In my experience the public vs private distinction matters at least as much as the RSU vs option one. Private-company equity of either kind can't be sold until the company goes public, gets acquired, or runs a tender offer (an organized event where the company permits employees to sell some shares, at a price and on a timeline the company chooses). Saying "I have $300k in stock" at a public company and saying it at a private one are two quite different statements.

Strike prices and the 409A, briefly

For US options, the strike price is normally set at the latest 409A valuation, an independent appraisal of the common stock. That number typically sits well below the headline valuation from the last funding round, because investors buy preferred shares with rights that your common shares lack (liquidation preferences, mainly). Two practical takeaways: the gap between your strike and the current 409A gives you a rough sketch of your paper gain, and the "$4B valuation" in the press release is pricing a different class of shares than yours. I'm deliberately staying in the shallow end of this pool; early exercise, 83(b) elections, and AMT are exactly the deep water where the tax professional earns their fee.

Vesting schedules and cliffs

The standard schedule is 4 years with a 1-year cliff: nothing vests for the first 12 months, then a quarter of the grant vests at once, then the remainder arrives monthly or quarterly. Leave in month 11 and you leave with zero, which is the cliff doing its intended job. Deviations deserve a careful read. Amazon's back-loaded 5/15/40/40 schedule is publicly documented, and it means the first-year comp figure in those offers depends heavily on a signing bonus that later years don't include.

Late-stage private companies often issue double-trigger RSUs, which require two things before they're truly yours: time served AND a liquidity event. You can be "fully vested" on paper while holding nothing you can sell, and the tax bill frequently lands at the second trigger, all at once. If a private company is offering RSUs, ask directly whether they're single or double trigger, because identical wording on an offer letter can describe very different assets.

Refreshers, and why initial grants decay

An initial grant is a finite tank, and every vest date drains it a little. Companies that routinely layer on refresher grants keep the tank full; companies that don't, or that reserve refreshers for the top performance ratings, produce the year-4 comp drop that surprises people who assumed the number in their offer letter was permanent. Before signing, ask how refreshers actually work: are they annual and expected or exceptional, are they tied to ratings, and roughly how large are they relative to initial grants. Realistically, those answers move the value of an offer over a 4-year horizon more than a modest base salary difference ever will.

What happens when you leave

Unvested equity disappears when you leave, everywhere, and that's simply the deal. Vested options usually carry a 90-day post-termination exercise window: you write a personal check for strike price times share count within 90 days, or the options expire worthless. At a private company, exercising can mean paying real cash (plus potentially tax on a paper gain) for shares you still cannot sell, which is the situation the phrase "golden handcuffs" was built for. A handful of companies have publicly extended their windows to 7-10 years, a genuinely candidate-friendly term worth asking about. Vested RSUs at a public company are just yours. Vested double-trigger RSUs at a private company put you back in the waiting room, until the second trigger fires.

Weighing equity against salary

The honest frame for equity is expected value with wide error bars. Public-company RSUs sit near face value, lightly discounted for volatility. Private-company equity is face value multiplied by the probability of a liquidity event at or above the paper price, and nobody (founders included) can compute that probability honestly, so the error bars are enormous. The practical rule that falls out: make sure the salary alone pays your rent. If the base covers your life and the equity is genuine upside, you can afford to be entirely wrong about the equity. If you need the equity for the offer to be livable, you're in a much riskier position than the paper number makes it feel. For calibration on what packages look like by level and location, levels.fyi remains the community standard, and if you plan to negotiate any of it, the equity and signing bonus components are usually the most flexible ones (Negotiation 101 covers that side of the conversation).

The questions to ask before you sign

I do a fair amount of woodworking, and the habit that saves the most lumber is reading the grain before the first cut, because the planed face of a board reveals very little about how it will behave under a blade (a beautiful face can hide reversing grain that tears out the moment it meets the jointer). The total comp figure on an offer letter is the board face. The vesting schedule, the triggers, the exercise window, the refresher policy: that's the grain underneath, and it determines what you're actually holding in four years. Reading the grain looks like this:

• How many fully diluted shares are outstanding? (A raw share count means nothing until you can convert it to a percentage.)
• What was the most recent 409A valuation, and what was the preferred price in the last round?
• Are the RSUs single or double trigger?
• How do refreshers work in practice, and how are they sized?
• What is the post-termination exercise window?
• Are there company repurchase rights or transfer restrictions beyond the standard ones?
• When was the last tender offer, and are there plans for liquidity? (Private companies won't always answer, and a flat refusal is itself useful information.)
• Can I see the full equity plan document, rather than just the offer letter summary? (Reasonable companies say yes.)

If you've already signed a grant you didn't fully understand, don't be too hard on yourself. Nobody teaches this material, and most of us picked up these terms one offer at a time. None of it needs to be memorized either. Save the question list, ask for the plan documents before you sign, run the salary-pays-rent test on any offer where the equity is doing heavy lifting, and spend the money on an hour of professional tax advice whenever options are involved. The vocabulary is finite, the documents become readable once you have it, and an afternoon spent reading the grain before you sign is worth years of not wondering what you agreed to.