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How To Negotiate Stock Options Offers at a New Job

You just got the job. Congrats! Here's how to negotiate stock options if you're able to get them.

By Iggy PaulsenPublished 5 years ago 5 min read

Nothing is quite as thrilling as getting a new job offer. It's a time when you feel like anything is possible. Maybe you'll be their rising star! Maybe you'll get promoted! Who knows? Maybe you'll finally find a group of friends in your industry and get the amazing life you've always wanted intact.

Wait, hold your horses! Don't get manic just yet!

Before you can get all excited and joyful, you should probably take care of the business aspect of getting a job. This includes things like negotiating a salary, asking all the questions you need to ask prior to accepting a job, and of course, figuring out whether you would be entering a toxic workplace.

If you're lucky enough to work at a high position in a publicly traded company, you will also have to negotiate stock options at your job. Stock options allow you to buy shares at a discount and cash them when they age. It gives you equity in the company.

Getting more stock options is the best way to ensure you have a bright future later on. Like with any terms dealing with your employment, your stock options can be negotiated. Here's what you should be aware of when trying to set a deal.

The first thing that you should do when you're trying to negotiate stock options is to ask how they are valued. If the stocks weren't values by Fair Market Value standards, then the "discount" you're getting might not really be a discount.

Startups typically would give much bigger discounts than a regular corporation, so if you are hoping for stock options with insane discounts, you may need to work for a startup.

Find out how big the discount would be, compared to preferred shares.

You want to make sure that any discount on stocks that you get will be worth the money you spend to buy the stock. It's worth pointing out that a discount on shares that's above 67% could potentially cause you to be saddled with an IRS tax burden because you had such a huge discount on the stocks you're selling.

If the discount is too high, you may want to scale back on purchases.

Ask about the most recent appraisal.

Most companies will get their exercise stock prices appraised twice a year, and when they get appraised, the exercise price typically rises. When this happens, the value of the stock options falls. If you want to talk about stock options with your new employer, it doesn't hurt to find out how recent was the last appraisal.

Don't be afraid to take the future into consideration.

When you're trying to get stock options in the new company, be realistic about the stock's future. A company that has serious potential to become a billion-dollar business is one where you really should take as many stock options as possible—even the discount isn't that big.

If a company really seems like it's going places, you should give them more leeway when it comes to options. After all, getting in on the ground up is a good way to enjoy massive returns.

A company that is very well-funded is a company that will have solid stocks and higher values than a company that has to flit from funding source to funding source. When a company's finances are unstable, it's a sign that the stocks' values will dive—or worse, become entirely erased.

If they sound like College Humor's "Start Up Guys" and seem desperate for funds, you probably shouldn't bother with getting too involved with the stock options. On the other hand, if they are well-funded and have Restricted Stock Units, stock options are incredibly wise to obtain.

Negotiate salary first, stock options next.

When you want to set down and talk business, it's important to negotiate stock options after you have finalized your starting salary. The reason why is simple: you can't eat options.

If you are working for a salary below what you need in order to survive just for some stock options, you're not going to want to work there. You need to have a decent salary more than you need stock options.

Not following this advice could put you in predatory situations, since some companies will try to get you to choose an under-par salary in exchange for risky stock options at a later period. Once that period ends, they fire the employees in search for other cheap labor that won't make it to options phases.

Stock options can't be exercised immediately, you know. They take time to vest. Usually, you will need to work about a year or so in order to gain access to stock options. This is because employers want you to work there, rather than just make a short term gain and leave.

When your stock options are ready to get exercised, they are vested. Vesting requires certain conditions to be met. This could be waiting periods that need to be met, certain valuations that have to happen, or a combination.

In most situations, you won't be able to negotiate rules involving vesting. However, if you're going to be a senior manager, it could be a bit different.

Oh, and you might also want to learn how long you have to buy those shares.

Don't forget that stock options are temporary benefits. People who don't cash in on their Employee Stock Options will eventually lose their ability to do so.

You really have to think about all the possibilities if you choose to partake in options. Find out how long you have to cash in before you go all in, how much other employees have gotten, what would happen if the company goes under, and what would happen to your options if you quit.

Oh, and make sure that you know what happens if your company goes public or if they remain a private company. Both have different implications in stock options.

All the other rules that involve negotiation are still in play.

Choosing to negotiate stock options is no different from trying to negotiate anything else. Knowledge is power, asking questions is a must, and you should still remain polite during your negotiations.

That being said, most aspects of Employee Stock Options aren't really negotiable—and that's often due to laws governing options. So, if you get options, learn how to work it to your advantage.

personal finance

About the Creator

Iggy Paulsen

Iggy Paulsen is a fan of anything and everything wholesome. He loves his two dogs, hiking in the woods, traveling to Aruba, building DIY projects that better humanity, and listening to motivational speakers. He hopes to eventually become a motivational speaker himself.

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