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Comment by arcanus | Hacker News Reader

Does HN have a strong opinion on RSUs vs. stock options? The article makes a peripheral mention of this but otherwise does not address it.

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It depends on the maturity of the company. If you want everyone going for broke, options are better because there's no downside if the company goes under. If you want people to be more conservative, RSUs are better because they balance downside and upside. So companies aiming for home runs are better serviced by options, while companies looking for predictable quarterly earnings are better served by RSUs.

Could you clarify your point about no downside if the company goes under? If the options are underwater then you get nothing, yet if you have RSUs, they'd be worth whatever a share of the company is worth (liquidity because of public/ private notwithstanding)

When you get options, your starting point is effectively zero because the strike price usually is zero. So if the stock goes down, you are still at zero - you just don't exercise the option. You have upside but no downside. If you have an RSU, you have the same upside and downside - 1 for 1 with the price.

Note - this isn't 100% accurate as options that are not in the money still have some value but the idea is more upside than downside.

Enormous tax differences, plus (I think?) employers avoid RSUs because they remove tax handcuffs for leaving.

Generally at private companies you aren't given RSUs. You are given a promise that at IPO or sale you will be given RSUs. If they gave you real ones they would be taxable but illiquid and you would be in a bad place.

Many private companies give RSUs then take some back to pay the taxes.

It really depends on the context... the valuation, latest 409A price etc. It's not that one is necessarily better than the other for all cases. You wouldn't want options at Intel or Microsoft since there may not be enough upside to see any delta from the strike price. (and companies can't give artificially low strike prices due to recent IRS laws around fair market value from 409A valuations). For a smaller private company, your strike price may be a third or half of what the last preferred share price is depending on stage of company, etc. With options, you're incentivized to increase the value of the company. On the other hand, RSUs are not usually used as an early employee at a startup since (assuming they are a RSU grant) RSUs are taxed as they vest. With startups having rapidly rising valuations, you would suddenly owe tax on something that is still illiquid. The company or employee would have to pay this large tax. Something not easy if you're a cash poor startup.

And they pay the taxes for you with cash? Interesting. Seems like a bad use of capital when there are other options available. Unless of course they have a source of secondary funding that employees can take advantage of.

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