How can you negotiate better employee stock options in a contract?

1 Understand the basics

Before you negotiate ESOs, it's important to understand the basic terms and conditions that affect their value. For example, the grant date is when you receive the ESOs and become eligible to exercise them. The vesting schedule determines when you can actually exercise your ESOs, usually requiring you to work for a certain period of time or meet certain performance goals. The exercise price is the price that you have to pay to buy the shares when you exercise your ESOs, usually the fair market value of the stock on the grant date. Lastly, the expiration date is when your ESOs expire and you lose the right to exercise them; this is typically 10 years from the grant date, though it can vary depending on the company and the contract.

2 Know your worth

One of the most important steps in negotiating ESOs is to know your worth and market value. You need to research how much other companies in your industry and location are paying for similar roles and skills. You also need to consider your experience, qualifications, and achievements. This will help you determine how much salary and ESOs you can expect and demand. You can use online tools, such as Glassdoor, PayScale, or AngelList, to find salary and ESO data for different companies and positions.

3 Ask for more

Once you have a clear understanding of your value, you can start asking for more ESOs in your contract. Negotiating and countering offers is expected, so don't be afraid to do it. You can use different strategies to ask for more ESOs, such as requesting a higher number of shares to increase your potential upside if the company's value grows in the future, a lower exercise price to reduce your cost of exercising ESOs, a shorter vesting schedule to exercise them sooner and take advantage of favorable market conditions, or a longer expiration date to give yourself more time to decide when to exercise them and avoid losing them.

4 Consider the trade-offs

While asking for more ESOs can be beneficial, you also need to consider the trade-offs and risks involved. ESOs are not guaranteed to increase in value or even retain their value. They are subject to market fluctuations, company performance, dilution, taxation, and other factors that can affect their worth. Therefore, you need to balance your ESOs with other forms of compensation, such as salary, bonuses, benefits, and perks. You also need to evaluate the company's vision, culture, growth potential, and financial stability. You don't want to accept a low salary and a high ESOs package from a company that might fail or stagnate in the future.

5 Get it in writing

Finally, once you have agreed on the ESOs terms with your employer, you need to get it in writing. You should receive a formal ESOs agreement that outlines the details of your ESOs, such as the grant date, the vesting schedule, the exercise price, the expiration date, and any other conditions or restrictions. You should review the agreement carefully and consult a lawyer or a financial advisor if you have any questions or concerns. You should also keep a copy of the agreement for your records and reference.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?