We want to build this company together. That’s why employee stock options are so important to us as part of any of our teammate's compensation.
Employee Stock Options (ESO) is a future contract between an employee and the company, many times with added taxation benefits, that give the employee the right to buy company stock at a great discount. In laymen's terms, it gives you the ability to buy 1$ worth of stocks at less than 1$. Let’s dig deeper into some of those terms, and do a quick simulation to see how it works.
Prior to joining the company, you'll get 3 offers as part of our offer simulation (read more about that Recruitment Process ). ESO is always part of these 3 offers, which means you will get x% percent of the company, the actual x is based on:
The offer is based on a percent number, and on the contract, the number of stock is being calculated to resemble the percent number that was selected from the offer.
Our usual offer is based on the methodology above with 4 years for full vesting, and a 1-year cliff, and quarterly vesting.
The easiest way to grasp how options work is with an example.
Simple Scenario
Let’s say you joined on day 1 of the company and were offered 10,000 options for the exercise price of $0.001 per stock, At that time company stock was valued at $1. (this is a rather common practice unless Fair Market Value is relevant in your country) This means you got extra compensation worth 10,000 * $1 - 10,000 * $0.001 = $10,000 - $10 = $9,990 as extra compensation. In 4 years’ time, the company is sold (means you’re able to convert stock to $) event while the company stock is valued at $142. So the total compensation in that time is worth 10,000 * $142 - 10,000 * $0.001 = $142,000 - $10 = $141,990 as extra compensation.
It’s easy to see that as the company grows the extra compensation can grow and be very significant. Now that we know a bit about how it works, let’s dive into some more “advanced” concepts.