RSUs vs. stock options in 2026: how equity compensation works and what yours is actually worth

Quick answer: RSUs (Restricted Stock Units) are a promise of shares that deliver automatically on a vest schedule -- no purchase required, no exercise price. Stock options give you the right to buy shares at a fixed "strike price"; they're only valuable if the company's stock price rises above that price. RSUs have guaranteed value if the stock is worth anything; options have higher upside potential but can expire worthless. Both trigger income tax when you realize the value.

Equity is often the largest component of total compensation at tech companies and startups -- and the component most commonly accepted without fully understanding what it's actually worth. Here's how to model it.

How RSUs work

An RSU is a company's promise to deliver shares to you after a vesting period, subject to continued employment. No purchase, no exercise, no decision on your part -- the shares arrive on the vest date.

Standard RSU vesting structure:

4-year total vesting period
1-year cliff (nothing vests until your first anniversary)
Quarterly or monthly vesting after the cliff (25% in year 1, then 6.25%/quarter thereafter)

Example:

You receive 1,000 RSUs when the stock is at $50 (paper value: $50,000).

After year 1 (cliff): 250 shares vest. If the stock is at $65, value = $16,250. This amount is ordinary income.
After year 1, quarterly: 62.5 shares vest each quarter at the then-current price.

Whether the stock went up or down, the vesting shares arrive on schedule. The gain or loss relative to your grant date price doesn't affect when or whether you receive them.

Tax at vesting: The fair market value of shares on the vest date is ordinary income. Your employer withholds taxes by automatically selling some shares ("sell to cover"). If your marginal rate exceeds 22% (the default withholding rate for supplemental wages), you may owe additional tax at filing -- set aside extra cash at vest time.

After vesting: You hold shares like any other investment. Sell immediately after vesting: no additional gain. Hold longer: any increase from the vest-date price is a capital gain (short-term if held < 1 year; long-term if held >= 1 year).

How stock options work

A stock option gives you the right -- but not the obligation -- to buy company shares at a specific "strike price," regardless of what the stock is trading at when you exercise.

NSO (Non-Qualified Stock Option): Available to employees, contractors, advisors, board members. At exercise, the spread (market price minus strike price) is taxed as ordinary income.

ISO (Incentive Stock Option): Only for employees. No regular income tax at exercise (though Alternative Minimum Tax may apply on large exercises). If you hold shares at least 1 year after exercise AND 2 years after the grant date, gains are taxed at long-term capital gains rates -- a significant advantage on large positions.

Example (NSO):

Strike price: $20/share
Current market price: $75/share
You exercise 500 options
You pay: 500 x $20 = $10,000
You receive shares worth: 500 x $75 = $37,500
Spread (ordinary income): $27,500 -- taxed at your marginal rate in the year of exercise

If the stock never rises above $20, exercising makes no economic sense. Options also expire -- typically 10 years from the grant date, or 90 days after you leave the company.

RSUs vs. stock options: comparison

| Feature | RSUs | Stock Options | |---------|------|--------------| | Guaranteed value? | Yes (if stock has any value) | No (worthless below strike price) | | Purchase required? | No | Yes (exercise price) | | Expiration | None after vesting | 10 years; 90 days post-employment | | Downside risk | Value falls with stock | Can expire completely worthless | | Tax trigger | Vest date (ordinary income on full value) | Exercise date (NSO: ordinary income; ISO: complex) | | Best scenario | Stable/public company | High-growth startup where stock rises significantly | | Worst scenario | Stock falls to zero | Stock never exceeds strike price |

How to value your equity grant

For public company RSUs:

Straightforward: shares x current stock price = approximate value. Account for vesting schedule -- only 25% of a 4-year grant is "yours" per year. Model each tranche at today's price (conservative) or a projected price (speculative).

For private company stock options:

Significantly more complex:

What was the 409A valuation at grant date? (Independent third-party fair value of common stock)
What is the current 409A valuation?
What is the liquidation preference stack? (Preferred investors often have 1x or 2x preference before common shareholders receive anything in an acquisition)
What is the fully diluted share count? (Determines your percentage ownership)

A startup valued at $200M sounds significant, but if venture investors hold $80M in liquidation preferences and common stock represents 60% of the cap table, the common stock value in a $200M acquisition is roughly ($200M - $80M) x 60% = $72M, divided among all common shareholders.

Ask the company for: total shares outstanding, your shares/options as a percentage, current 409A value, and the liquidation preference by round.

Tax planning

RSU taxes:

Vest date triggers ordinary income on full vest value
Default withholding (22%) may be insufficient if your total income is in the 32-37% bracket
Consider whether to sell immediately at vest or hold (only hold if you'd buy the stock with cash today at that price)

NSO options:

Exercise triggers ordinary income on the spread
Timing an exercise in a lower-income year can reduce the tax hit
Exercising and immediately selling (same-day exercise and sale) locks in the income with no additional market risk

ISO options:

No regular income tax at exercise
AMT may apply in the exercise year on the spread (requires a tentative minimum tax calculation)
Hold 1 year post-exercise and 2 years post-grant for long-term capital gains treatment on the full appreciation
For large ISO exercises, consult a CPA -- the AMT interaction is complex and can create a significant tax bill in the exercise year

What to negotiate

For RSUs:

Grant size (number of shares or dollar value at grant)
Refresh grants (annual top-up awards to maintain unvested balance at a target level)
Acceleration on change of control (do unvested shares vest if the company is acquired?)

For stock options:

Post-termination exercise window (standard is 90 days; some companies offer 1-10 years -- this is especially valuable for large ISO positions)
Double-trigger acceleration (vests on acquisition AND if you're let go within 12 months after)

We built SalaryCheck to help you evaluate whether a complete comp package -- base, bonus, and equity combined -- is competitive for your role, level, and location.

Frequently asked questions

What happens to my RSUs if the company gets acquired?

Usually one of two outcomes: unvested RSUs are assumed by the acquirer and continue vesting on the original schedule, or they're accelerated and paid out in cash or acquirer shares at closing. Your offer letter or equity award agreement should specify which applies.

Can I lose unvested RSUs if I leave?

Yes. Unvested RSUs are forfeited immediately on termination (voluntary or involuntary). Leaving before your next vest date means leaving that value behind -- the "golden handcuff" effect.

What is a vesting cliff?

A cliff means zero shares vest until a specific date (usually one year). On your anniversary, the cliff amount vests all at once. Before the cliff, you own no equity. If your company has a layoff before your cliff date, you leave with nothing from that grant.

Should I exercise my options before the company goes public?

Sometimes. Early exercise (possible under some plans within 30 days of grant, via an 83(b) election) starts the capital gains clock earlier. But it requires cash upfront and carries risk that the company never achieves a liquidity event. Get tax-specific advice before making this decision -- the downside on early exercise is real cash at risk.

How do I find out my equity grant details?

Your grant agreement (typically delivered via email or a platform like Carta or Shareworks) contains the number of shares/options, grant date, strike price (for options), vesting schedule, and plan name. If you can't locate it, contact HR or the cap table platform directly.

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