SWE Equity Assessment

The estimates in this tool are based on aggregated public compensation data and reflect typical industry practices. However, equity grants vary significantly by company, role, negotiation, and market conditions. These figures should be used as a benchmark, not as exact predictions. For the most accurate assessment, review the specific terms of your offer or consult resources like Levels.fyi for company-specific data.

Equity value can change dramatically based on company performance, market conditions, and liquidity events (e.g., IPO, acquisition). For example:

• RSUs: Typically convert to shares at a fixed price when vested, so their value fluctuates with the company’s stock price.
• Stock Options: Value depends on the difference between the strike price and the current stock price. If the stock price falls below the strike price, options may become worthless.

Additionally, dilution from new funding rounds or employee equity pools can reduce the percentage of the company you own over time.

The answer depends on your personal financial situation, risk tolerance, and career goals. Equity has the potential for significant upside (e.g., RSUs from a FAANG company or stock options from a successful startup), but it also carries risk, especially with early-stage companies. Consider:

• Base Salary: Provides stability and immediate liquidity, which is especially important if you have financial obligations.
• Equity: Offers potential long-term upside but may take years to realize value. It’s riskier but can be lucrative if the company performs well.

Many software engineers aim for a balance between the two, prioritizing salary for near-term needs while using equity as a potential long-term investment.

Comparing equity offers requires evaluating several factors:

• Grant Type: RSUs are generally safer than options because they have inherent value. Options may expire worthless if the strike price exceeds the stock price.
• Company Stage: Public companies offer more predictable equity value, while private companies carry higher risk but potential for higher returns.
• Vesting Schedule: Most companies use a 4-year vesting schedule with a 1-year cliff. Faster vesting (e.g., monthly) may be more favorable.
• Percentage of Compensation: A high equity percentage suggests the company is compensating with more risk/reward. Compare this to industry norms for your role level.

Use this tool to benchmark offers, but also research the company’s financial health, growth trajectory, and employee reviews for additional context.

RSUs (Restricted Stock Units): These are shares of stock granted to you, typically vesting over time. Once vested, they have inherent value (equal to the current stock price) and don’t require you to pay for them. They’re less risky than options but may be subject to taxes at vesting.

Stock Options: These give you the right to purchase shares at a fixed strike price in the future. If the current stock price is higher than the strike price, you can buy shares at the lower price and sell them for a profit. If the stock price is below the strike price, the options may expire worthless. Options are riskier but can offer higher upside if the company performs well.

Companies often use one or both types of equity depending on their stage and compensation philosophy.

Vesting is the process by which you earn the right to your equity over time. Most equity grants follow a 4-year vesting schedule with a 1-year cliff, meaning:

• 1-year cliff: If you leave the company before 1 year, you get nothing. After the cliff, 25% of your equity vests.
• Remaining vesting: After the cliff, the rest of your equity typically vests monthly or quarterly over the next 3 years.

Vesting is important because it aligns your interests with the company’s long-term success. It also provides a retention mechanism—if you leave early, you forfeit unvested equity.

Taxes on equity compensation can be complex and vary by country/state. In the U.S., here’s a high-level overview:

• RSUs: Taxed as ordinary income when they vest. The amount taxed is the fair market value of the shares at vesting.
• Stock Options: Taxes depend on whether they’re non-qualified options (NQOs) or incentive stock options (ISOs). NQOs are taxed as income when exercised, while ISOs may qualify for long-term capital gains tax if held for a year after exercise and two years after the grant date.

Always consult a tax professional to understand your specific obligations and optimize your tax strategy.

When evaluating an equity offer, ask the recruiter or hiring manager these key questions:

• Grant Details: How many shares or what dollar value of equity is being offered? Is this in RSUs or stock options?
• Vesting Schedule: What’s the vesting timeline? Is there a cliff?
• Strike Price (for options): What’s the current strike price, and how does it compare to the company’s latest 409A valuation?
• Company Valuation: What’s the company’s latest 409A valuation, and how has it changed over time?
• Liquidity: What are the plans for a liquidity event (e.g., IPO, acquisition)? Are there any secondary markets for employees to sell shares?
• Dilution: How much of the company’s equity is reserved for future hires?

The answers will help you contextualize the equity portion of your offer and assess its potential value.