Equity Compensation: Monopoly Money or Real Dough??
Here are the basic definitions of equity compensation. Equity compensation can be a game-changer - if you know how to play the game!
Congrats! You just got an offer letter (or a promotion), and alongside your salary, there’s something about RSUs, stock options, or ESPPs. You nod, smile, and pretend you totally get it—but inside, you’re wondering:
👉 Is this real money?
👉 When do I actually get paid?
👉 How much of this will the IRS steal?
Fear not, my financially savvy (or soon-to-be savvy) friend! Let’s break this down, woman-to-woman, in a way that actually makes sense.
1. What the Heck Did I Just Get?
Equity compensation is your company’s way of saying, “Hey, we like you. Stick around, and we’ll give you some company stock.” But how they do it varies:
Restricted Stock Units (RSUs) – The company gifts you shares, but they vest over time (meaning you don’t actually own them yet). It’s like dating someone who says, “I love you” but won’t let you meet their family until year two.
Stock Options – You have the right to buy company shares at a fixed price. If the stock price goes up, you can cash in on the difference. If it drops… well, let’s not talk about that.
Employee Stock Purchase Plans (ESPPs) – You can buy company stock at a discount, which sounds great—unless your company stock is as unpredictable as your ex.
2. When Do I Actually Get the Money?
Ah, the million-dollar question. You’ll need to check your vesting schedule, which determines when your stock becomes yours.
Cliff vesting: You get nothing for a while, then—boom—one big chunk at once. Like waiting months for a text back.
Graded vesting: You get a little bit over time, so you’re not waiting forever to cash in. More of a slow-burn situationship.
If you leave your company before your shares vest? Say goodbye to that stock (and maybe add it to your list of things I regret).
3. Taxes: Will This Ruin My Relationship with the IRS?
Unfortunately, yes. The government wants its cut, and how much you owe depends on whether you sell your stock quickly (short-term gains = higher taxes) or hold onto it (long-term gains = lower taxes).
RSUs? Taxed as income when they vest. You can’t avoid this—kind of like a bad haircut you have to grow out.
Stock options? Taxed when you exercise or sell. Timing is everything.
Best advice? Plan ahead. The last thing you want is a surprise tax bill that eats up your next solo vacation fund.
4. Should I Hold or Sell?
This is where things get spicy. If you keep all your stock, your financial future is completely tied to your company’s success. If you sell, you diversify (aka, don’t put all your eggs in one corporate basket).
A good rule of thumb: If more than 10-15% of your net worth is tied up in company stock, it’s time to rebalance. No one wants their financial security riding on one stock price—especially in a market that can turn faster than a Hinge date gone wrong.
5. What Happens If I Quit?
Before you dramatically walk out (or gracefully exit), check your equity details:
Unvested RSUs? Poof—gone.
Stock options? You likely have 90 days to exercise them before they disappear.
ESPP shares? Those are yours, so do whatever you want.
Leaving a job with unclaimed equity is like breaking up without getting your stuff back. Check your paperwork before you go.
6. How Does This Fit into My Bigger Financial Picture?
Equity compensation is amazing, but it’s not a substitute for real financial planning. Use it to:
✔️ Boost your emergency fund
✔️ Pay off debt (yes, that one credit card)
✔️ Invest in a diversified portfolio (because betting your future on one stock is… risky)
Bottom line? Equity comp can be a game-changer—if you know how to play the game. Now go forth and conquer your finances like the boss you are!