When Paper Beats Cash—helping executives measure the value of stock options

When Paper Beats Cash—helping executives measure the value of stock options

Employees these days have a number of factors to consider when going into a new job and negotiating compensation. Is it better to have a higher salary and fewer stock options? Or a lower salary and more stock options? According to an informal survey conducted by Forbes magazine, most employees have no idea how to place a value on options and make a clear decision. Factors to consider are:

  1. Vesting (will you still be with the company by the time your options vest?);
  2. Expiration (the options probably expire if a private company never goes public while you are there);
  3. Liquidity (it’s possible your shares might be unsalable; and sometimes the company gets right of first refusal);
  4. Preferences (preferred shares, sold to outsiders funding a new company, might be entitled to 100% or 200% of the amount invested before employees get any money);
  5. Dilution (generally, all employees are stock owners. This means everyone can either win big or, because of the spread, only get a small payout).

Read more at forbes.com (not full story)