RSU vs Stock Options: Which Is Better and How to Compare Them

You have two offers. One comes from a public company with RSUs. The other comes from a funded startup with stock options. Both sound like equity compensation but they work completely differently, carry different risks, and require a different framework to compare.

This guide explains exactly how RSUs and stock options differ, which is typically better for employees, and how to put a real number on each so you can make a proper comparison.

What is the core difference between RSUs and stock options

An RSU is a promise to give you shares of company stock at a future date. When your RSUs vest you receive actual shares worth their current market value. You do not pay anything to receive them. The value is real and calculable today.

A stock option is the right to buy company shares at a fixed price called the strike price. If the stock price rises above your strike price you can buy shares at the lower price and profit from the difference. If the stock price never rises above your strike price your options are worth nothing.

The critical distinction is that RSUs always have value as long as the company exists. Stock options only have value if the stock price exceeds your strike price. This asymmetry is why the two types of equity require completely different evaluation approaches.

How RSUs work in practice

Most RSU grants at public companies follow a four year vesting schedule with a one year cliff. You receive nothing for the first twelve months. At month twelve 25% of your grant vests. After that shares vest quarterly or annually until you are fully vested at the four year mark.

When shares vest they are treated as ordinary income and taxed at your marginal rate. If 500 shares vest when the stock is trading at $100, you have $50,000 of ordinary income regardless of whether you sell the shares or hold them. Your employer typically withholds a portion of the shares to cover the tax owed.

The advantage of RSUs is simplicity. You receive shares with real market value. You can sell them immediately on vesting or hold them. No purchase decision required, no strike price to worry about, no expiration date on vested shares.

How stock options work in practice

Stock options at startups are typically Incentive Stock Options. When you receive a grant you are given the right to buy a certain number of shares at the strike price, which is set at the fair market value of the stock at the time of your grant based on a 409A valuation.

Options vest on a similar schedule to RSUs. But unlike RSUs, vesting does not mean you receive shares. It means you have the right to exercise your options by paying the strike price to receive shares. Most employees wait until there is a liquidity event like an IPO or acquisition.

There is a critical time limit. When you leave a company you typically have 90 days to exercise your vested options. If you do not exercise within that window you lose them permanently. This means leaving a startup with valuable vested options requires a real financial decision.

Which is better for most employees

For most employees in most situations RSUs are the better form of equity compensation. RSUs have a guaranteed floor value. When 500 shares vest at $80 you have $40,000 of real compensation regardless of what happens afterward. Stock options require the stock to rise above your strike price before you have any value at all.

That said, stock options have a higher ceiling. If you join a startup at a $20 million valuation and it exits at $2 billion, a relatively small option grant can be worth life-changing money. The leverage that makes options risky on the downside is the same leverage that makes them potentially extraordinary on the upside.

How to put a real number on stock options

RSUs are easy to value because the stock trades publicly. Stock options at a private company require more work.

Start with the company's last 409A valuation. Subtract your strike price from the current fair market value per share. Multiply by the number of options you are being granted. That gives you the current paper value of your options.

Then ask what exit multiple would need to happen for your options to be worth a specific amount. If the company is valued at $100 million and you have 0.1% of shares fully diluted, a $1 billion exit would make your options worth approximately $1 million before taxes and liquidation preferences. Model two or three scenarios and assign your own probability to each one.

The questions to ask before accepting either type

For RSUs at a public company ask: what is the total grant value at today's price, what is the vesting schedule and cliff, and what percentage of your total compensation does equity represent?

For stock options at a startup ask: what is the 409A valuation and your strike price, what percentage of the fully diluted share count does your grant represent, what are the liquidation preferences on preferred stock, and what happens to your options if you leave before a liquidity event?

The liquidation preference question is the one most employees skip. If investors hold preferred stock with a 2x liquidation preference, they receive twice their investment before any proceeds flow to employees. In a modest exit this can result in employees receiving far less than their percentage suggests.

How to compare an RSU offer against a stock option offer

For the RSU offer, take the total grant, model three stock scenarios at minus 30%, flat, and plus 40%, and use flat as your base case. Add four years of base salary, bonus, and 401k match. That is your four year total compensation.

For the option offer, model the value at two or three exit scenarios. Weight each by your estimated probability. Add that risk-adjusted equity value to four years of cash compensation. Compare the two totals.

The comparison will almost always show the public company offer is worth more in expected value. The question is whether the startup upside is compelling enough to accept the lower expected outcome in exchange for the possibility of something much larger.