Equity is the part of a PM offer that people understand least and negotiate worst.
Recruiters quote it in dollars as if it were cash. Candidates nod along, do rough math in their heads, and sign. Sometimes that equity turns into a house down payment. Often it turns into nothing.
This guide covers what the terms actually mean and how to value equity honestly. One disclaimer up front: this is general education, not tax or financial advice. For real money decisions, talk to a professional.
The Two Main Flavors: RSUs and Options
Almost every PM offer with equity includes one of two instruments.
RSUs (Restricted Stock Units)
An RSU is a promise: the company gives you shares as they vest. You don't buy anything. When shares vest, you own them.
At public companies, vested RSUs are close to cash. You can sell them the day they vest (subject to trading windows). If a public company offers you $60K per year in RSUs, treat it as roughly $60K of income, with the caveat that the stock price moves.
Private companies grant RSUs too, especially late-stage ones. Those are worth less than the sticker suggests because you usually can't sell until an IPO or acquisition.
Stock Options
An option is the right to buy shares at a fixed price (the strike price) after they vest. You profit on the gap between the strike price and what the shares are eventually worth.
Two types matter:
- •ISOs (Incentive Stock Options): The common type for startup employees. They get favorable tax treatment if you meet holding requirements, but can trigger AMT (alternative minimum tax) when you exercise. That surprises people.
- •NSOs (Non-qualified Stock Options): Simpler and worse tax-wise. The spread between strike price and fair market value is taxed as ordinary income when you exercise.
If a recruiter can't tell you which type you're being offered, ask for it in writing.
Vesting: When the Equity Becomes Yours
Equity vests over time. The standard is four years with a one-year cliff: nothing for the first year, then 25% at your one-year mark, then monthly or quarterly after that.
Things to check:
- •The cliff. Leave at month 11 and you get zero. Standard, but know it.
- •Vesting shape. Some companies backweight vesting (10/20/30/40 by year). That's worse for you and worth flagging.
- •Refreshes. At healthy companies, you get additional grants over time, so your vesting doesn't fall off a cliff at year four. Ask how refreshes work.
The Terms That Actually Determine Value
For startup options especially, a few less-famous terms matter more than the share count.
Strike price and the 409A. Private companies get an independent appraisal called a 409A valuation, which sets the fair market value of common stock and therefore your strike price. A low strike relative to where the company is heading means more upside. Ask what the current 409A price is and what the strike on your grant would be.
Preferred vs. common. Investors hold preferred stock. You get common. Preferred comes with liquidation preferences: in a sale, investors get paid back first (sometimes a multiple of their money) before common shareholders see anything. In a mediocre exit, preferences can eat everything. A company that sold for $80M after raising $70M may pay employees close to nothing.
Dilution. Every future funding round creates new shares, shrinking your percentage. Owning 0.1% today likely means owning less at exit. Normal, but it means your back-of-napkin exit math should get a haircut.
Exercise windows. When you leave, most companies give you 90 days to exercise vested options or lose them. Exercising can cost tens of thousands in strike price plus taxes, right when you've left a job. Some companies now offer extended windows of 5-10 years. A long exercise window is a real, underrated perk. Weight it in your decision.
Taxes, at Altitude
Broad strokes only, and again, not tax advice:
- •RSUs are taxed as ordinary income when they vest, like salary. Public companies typically withhold shares to cover it.
- •NSOs create ordinary income on the spread at exercise.
- •ISOs can avoid tax at exercise but may trigger AMT, and get capital gains treatment only if you hold long enough after exercising.
- •Early exercise and 83(b) elections exist and can help at very early startups, but the 30-day filing deadline is unforgiving.
The theme: equity events create tax events at times you don't fully control. Before exercising anything substantial, spend a few hundred dollars on an hour with a tax professional. Cheapest insurance you'll buy.
How to Value Startup Equity Honestly
Here's the framing that keeps you sane: value startup equity as a probability-weighted lottery ticket, and often the honest expected value is close to zero.
Most startups don't exit at all. Of those that do, many exit at values where preferences and dilution leave common shareholders with little. A useful mental model:
- •Take the implied value the recruiter quotes ("your grant is worth $200K at our last valuation").
- •Discount for the odds the company ever exits well. For a seed-stage company that's a heavy discount. For a strong growth-stage business, less so.
- •Discount again for dilution and preferences.
- •Whatever's left, treat it as upside, not income.
Make sure you can live well on the cash alone. Based on our PM job posting data, cash ranges cluster around $140-170K for mid-level PMs, $170-210K for Senior, and $210K+ at Principal, and equity typically starts adding meaningful upside at the Senior level and above. If an offer leans hard on equity to look competitive against those numbers, that's a bet you're choosing to make. Sometimes it's a great bet. Just make it with open eyes.
Public company RSUs are the exception. Treat them as near-cash with volatility, not as a lottery ticket.
Questions to Ask Before You Sign
Any serious company will answer these. Evasiveness is itself an answer.
- •"What was the last valuation, and when was that round?" A 2021 valuation nobody has marked down since is stale.
- •"How many total shares are outstanding?" or "What percentage does my grant represent, fully diluted?" A share count without a denominator is meaningless. 50,000 options could be 1% or 0.005%.
- •"What's the current 409A price and my strike price?"
- •"Are there liquidation preferences I should know about? Any multiples?" They may not disclose everything, but the reaction tells you plenty.
- •"What's the exercise window if I leave?"
- •"How much runway does the company have?" Equity in a company that dies in 18 months is worth exactly nothing.
- •"How do refresh grants work here?"
Write the answers down. You're comparing offers, and memory is unreliable.
Negotiating the Equity Component
A few practical notes:
Equity is often more flexible than base. Companies with tight salary bands can frequently move on grant size. If base is capped, push on equity.
Some companies let you trade cash for equity or vice versa. Choose based on your actual finances and risk tolerance, not optimism.
Negotiate terms, not just size. An extended exercise window or earlier vesting start can matter more than 10% more options.
Equity is one input to a bigger decision. Our guides on evaluating a PM job offer and salary negotiation for PMs cover how to weigh the whole package and actually push on it.
The Bottom Line
Equity isn't a scam and it isn't free money. It's a financial instrument with terms, and the terms are knowable.
RSUs at public companies: near-cash. Options at startups: a lottery ticket whose odds you can partially estimate by asking direct questions about valuation, ownership percentage, preferences, and runway.
Value the cash first. Treat equity as upside. Ask the awkward questions before you sign, because afterward nobody has any reason to answer them.
When you're ready to put this to work, browse PM roles with posted compensation at productmanagerjobboard.com and compare packages with clear eyes.