Equity compensation has become a defining part of how startups attract and retain talent. But as more professionals accept offers tied to future company value, one question remains front and centre: what are the average stock options for employees today, and what is fair?
Startups are using employee stock options, also known as ESOP, to compete with big salaries and offer real ownership. Yet, confusion still surrounds how these startup stock options work, what is typical, and how much is enough.
This article breaks down everything, from how employee stock options work to fair stock option allocation and what percentage of employee shares in startups you should expect today. If you are a founder or early employee, clarity starts here.
Key Takeaways
- Average stock options for employees vary by role, stage, and region, with fair benchmarks emerging globally.
- A well-structured ESOP for startup employees balances risk, reward, and long-term alignment.
- Startup stock options are only valuable if employees understand vesting, dilution, and exit potential.
- Founders must prioritise transparency and legal clarity when offering employee shares in startups.
What Are Stock Options and Why Do Startups Offer Them?
Stock options are promises of ownership. In simple terms, they give employees the right, but not the obligation, to buy a specific number of company shares at a fixed price in the future. This price, known as the exercise price or strike price, is usually set on the day the employee joins the startup.
If the company grows and its value increases, the employee can buy shares at a lower price and potentially profit from the upside.
Startups use stock options because they typically cannot afford to pay high salaries in the early stages. By offering employee stock options, founders can attract skilled talent while preserving cash. More importantly, stock options create a sense of shared ownership, where everyone on the team has a stake in the company’s future success.
Why Do Startups Offer Stock Options to Employees?
Below is a quick summary of why startups offer stock options and why they appeal to employees looking beyond a monthly paycheck.
| Reason | What It Means for the Startup | What It Means for the Employee |
|---|---|---|
| To save cash | Startups often cannot afford high salaries in the early stages, so they offer stock options to reduce upfront cash expenses. | This allows you to join a startup with lower pay but the potential to earn big if the company succeeds. |
| To attract top talent | Equity makes startups more competitive when hiring, especially when they are up against big, well-funded companies. | You get the opportunity to own part of a company from the ground up, which can be financially rewarding in the long run. |
| To keep the team aligned | Stock options help ensure everyone is working towards the same goal: increasing the company’s value. | Your personal success becomes tied to the company’s growth, so you are more motivated to give your best. |
| To retain employees | Vesting schedules encourage employees to stay longer, providing stability and continuity for the startup. | The longer you stay with the company, the more ownership you earn, and the more valuable your shares can become. |
| To build a shared culture | When everyone owns a piece of the company, it fosters a sense of ownership, responsibility, and collective drive. | You are not just doing a job, you are contributing to something you partly own, which boosts engagement and morale. |
See Also: Equity Roll Forward- The Ultimate Guide to Tracking Ownership Changes Over Time
Common Types of Equity Compensation
Equity is a key part of how startups reward and retain talent. From stock options to RSUs, each type offers different benefits, risks, and tax rules. Understanding these differences helps employees see the real value in their offers and helps founders design smarter compensation plans.
The table below outlines the most common equity types and what they mean in practice:
| Equity Type | Definition | Ownership? | Tax Implications | Best For |
|---|---|---|---|---|
| Stock Options (ISO/NSO) | Right to buy shares at a set price after vesting. | Potentially | Taxed when exercised and sold (varies by type). | Early-stage employees who are willing to wait for liquidity. |
| Restricted Stock Units (RSUs) | Shares granted outright after vesting; no purchase needed. | Yes | Taxed as income when shares are delivered. | Later-stage or IPO-bound startups. |
| Restricted Stock Awards (RSAs) | Shares issued upfront, often at a discount, but subject to vesting. | Yes | Taxed on receipt or as they vest (depends on elections). | Founders or very early hires. |
| Phantom Stock / SARs | Cash bonus linked to company valuation with no actual equity. | No | Taxed as ordinary income on payout. | Markets where equity regulation is complex. |
| Profit Interest Units | Ownership interest in future profits, not existing value. | Partially | Favourable tax treatment in some jurisdictions. | Startups structured as partnerships. |
See Also: Benefits of Holding Stocks for the Long Term
How Employee Stock Options Work
Stock options are one of the most popular forms of equity compensation at startups, but they are also widely misunderstood. They do not give you shares immediately. Instead, they give you the option to buy shares later, often at a discount, if you stay with the company long enough.
To understand what you are being offered, you need to know how vesting works, what cliffs mean, how strike prices are set, and how dilution can affect your ownership. In the next sections, we will break down each of these concepts so you can make informed decisions about your stock options.
Strike Price
The strike price, also called the exercise price, is the fixed price you will pay to buy each share under your stock option grant. It is usually based on the company’s fair market value at the time your options are granted.
This price determines your profit later. If your strike price is $1 and the company sells at $10 per share, you make $9 per share. But if the company never grows or exits, your options may be worth nothing, even if you have vested all of them.
Here is what to know about how strike prices are set and why they are important:
| Term | Description | Impact |
|---|---|---|
| Strike Price | The amount you must pay to buy each share when you exercise your options. | A lower strike price means greater potential profit at exit. |
| Fair Market Value | The value used to calculate your strike price at the time of grant. | It is usually based on an independent valuation, and it sets the baseline cost of your equity. |
| Timing of Option Grant | When you join affects your strike price as early hires often get lower pricing. | Joining early often means a better deal and more upside potential. |
| High Strike Price | Happens when the company is already highly valued at the time of the grant. | Can make options less attractive or financially unfeasible to exercise. |
| Discounted Options | Options issued below fair market value. | Can trigger tax penalties in many countries. Always ask how your strike price is set. |
Exercise Window
Your exercise window is the time you have to buy your vested shares after leaving the company. If you do not act before the window closes, you lose your options, even if you have already earned them.
Most startups offer a 90-day window, which may not give you enough time or money to exercise. Some more progressive startups now offer longer exercise periods to reduce this pressure.
Here is what a typical exercise window looks like and what to watch for:
| Term | Description |
|---|---|
| Standard Window | Usually 90 days after your final working day. |
| Extended Window | Ranges from 1 to 10 years, depending on the company policy. |
| Cost to Exercise | Total amount you need to pay: strike price × number of shares. |
| Tax Implications | In some countries, taxes are due when you exercise—even before selling shares. |
Vesting Schedules and Cliff Periods
When you are granted stock options, you do not own them right away. Instead, they vest over time, meaning you earn them bit by bit as you stay with the company.
Most startups also include a cliff period, which is the minimum time you need to stay before earning any equity at all.
This system protects both the company and the employee. It ensures that equity is only granted to people who stick around, while giving employees a clear timeline of ownership.
Here is what typical vesting schedules and cliff periods look like in practice:
| Vesting Type | Description | Who Uses It | Why It Matters |
|---|---|---|---|
| 4-Year Vesting with 1-Year Cliff | No equity until after 12 months (cliff), then 25% vests, followed by monthly or quarterly vesting. | Most early- and growth-stage startups | Standard global model; rewards long-term commitment. |
| 3-Year Vesting with 6-Month Cliff | Faster vesting schedule, sometimes used in competitive hiring environments. | Startups looking to attract top talent | Encourages quicker equity earning while maintaining retention. |
| 5-Year Vesting, No Cliff | Gradual vesting from day one, without a cliff period. | Mature startups or corporate spin-offs | Offers continuous reward but less protection for the company. |
| Performance-Based Vesting | Shares vest when certain KPIs or milestones are met, instead of by time. | Founders, execs, or sales leaders | Aligns equity with company results or revenue goals. |
Acceleration Clauses: Single-Trigger vs. Double-Trigger
When a startup is acquired, what happens to your unvested stock options? That depends on whether your equity agreement includes an acceleration clause, a rule that speeds up the vesting of your remaining shares.
There are two main types: single-trigger and double-trigger acceleration. These clauses play a big role in what you walk away with during a sale or acquisition. Here is a quick comparison:
| Type | What Triggers It | How It Works | Why It Matters |
|---|---|---|---|
| Single-Trigger | The company is being sold or acquired | Unvested shares vest immediately at the time of sale | Rewards employees just for staying through the acquisition |
| Double-Trigger | The company is sold, and the employee is terminated or demoted after the sale. | Shares vest only if you are let go without cause after the acquisition | It protects employees who may lose their jobs post-sale |
Dilution and What It Means for Employees
Dilution happens when a startup issues more shares, usually during fundraising or when expanding the employee option pool. While this helps the company grow, it also means each shareholder owns a smaller percentage of the company.
If you are granted 1% of a company today, and the company raises more capital later, your 1% might shrink to 0.6% or less. That is dilution. It does not mean your shares are worthless, but it does mean your slice of the pie gets smaller unless the pie itself grows much bigger in value.
In this section, we will walk through how dilution works, how to read a cap table, and what you should ask about your employee stock options when new funding rounds happen.
Dilution Explained: Cap Table Example
Here is a simple cap table example to illustrate how dilution works and how it affects employee stock options over time. This table compares the ownership structure before and after a fundraising round.
| Shareholder | Before Series A | After Series A (Post-Dilution) |
|---|---|---|
| Founders | 70% | 52.5% |
| Early Employees (ESOP) | 15% | 11.25% |
| New Investors | 0% | 30% |
| Option Pool Expansion | 15% | 6.25% (additional reserved equity) |
| Total | 100% | 100% |
The cap table shows how ownership changes after fundraising. Before the Series A, founders and early employees held most of the company. But once new investors come in, everyone’s percentage, especially the employee stock option pool, shrinks. This is called dilution.
For employees, dilution means your share of the company gets smaller, even if the number of your options stays the same. That is why it is important to ask how many shares exist, whether your options are pre- or post-dilution, and if the option pool will expand in future rounds.
Dilution is not necessarily negative, as your smaller stake could still be worth more if the company’s value grows. But to make informed decisions, you need a clear view of how employee shares in startups change over time.
Global Norms for Stock Options by Role
Equity compensation is influenced by role, seniority, and company stage. Across Series A and B startups, equity ranges have become more standardised, helping founders and employees align on what is fair.
While exact figures vary by geography and business model, the ranges below represent typical benchmarks used by investors and compensation experts globally.
| Role | Typical Equity Range (%) |
|---|---|
| C-Level Executive (Non-Founder) | 0.8 – 2.5% |
| Vice President (VP) | 0.3 – 2.0% |
| Director | 0.5 – 1.0% |
| Manager | 0.2 – 0.7% |
| Other Employees (ICs) | 0.1 – 0.3% |
Equity is usually higher for earlier employees and those in mission-critical roles. Senior employees typically receive more equity than junior employees, reflecting their greater responsibility, risk, and long-term impact.
As companies mature and valuations rise, equity percentages decline, but the potential value can increase.
For a detailed breakdown of current compensation norms, check out the Carta Startup Compensation Report 2024.
How to Define “Fair” Equity in 2025
Fair equity in 2025 goes beyond impressive numbers on offer letters. It is about aligning ownership with actual contribution, timing, and the level of risk an employee takes when joining a startup.
Companies today are more intentional with how they structure employee stock options, and employees are more equipped to evaluate what is truly fair.
Here are the key factors that define fairness in today’s startup landscape:
| Factor | Why It Is Important |
|---|---|
| Market Value | The higher the company’s current value, the smaller the equity stake offered. |
| Startup Stage | Early-stage startups offer more equity to compensate for higher uncertainty. |
| Role Seniority | Equity increases with the scope of responsibility and impact on company growth. |
Equity is just one part of your total reward. In startups, cash + equity is often the real compensation equation. But even a generous equity offer can lose value if it is diluted in future rounds or if there is no clear path to liquidity.
That is why fairness today also means assessing the risk-adjusted value of what the equity might realistically be worth, factoring in dilution, tax obligations, and the company’s timeline to an exit.
Benchmarks for Fair Stock Option Allocation
While there is no universal rule, startup ecosystems are aligning around rough benchmarks by role and funding stage. Here is a snapshot of what is considered “fair” today:
Typical Employee Equity Allocation by Role and Stage
| Role | Seed Stage | Series A | Series B+ |
|---|---|---|---|
| Engineer | 0.25–0.75% | 0.1–0.5% | 0.05–0.2% |
| Head of Product | 1–2% | 0.5–1.5% | 0.25–1% |
| COO | 2–5% | 1–3% | 1–2% |
These numbers are not fixed but serve as negotiation anchors. They also vary by geography, funding size, and whether the company is remote, global, or local.
Equity is ultimately a bet on the company, the team, and your time. Fairness means making that bet with your eyes open.
Employee Checklist – What to Ask Before Accepting an Employee Stock Option
Getting offered employee stock options can feel exciting, but do not sign blindly. A strong equity offer is not just about the number of shares. It is about what those shares mean in context.
Here are the essential questions to ask before accepting any equity-based offer:
| Question | What It Means |
|---|---|
| How many total shares are outstanding? | Helps you calculate what percentage your options represent. |
| What is the company’s current valuation and share price? | Gives context to the value of your equity and potential upside. |
| What is the vesting schedule and cliff? | Clarifies when your shares become yours and what happens if you leave early. |
| Is there a formal stock option agreement? | Ensures legal protection and transparency, and it must be board-approved. |
| Will the option pool be increased later? | Determines if future hires will dilute your ownership further. |
| Are there acceleration clauses (single or double-trigger)? | Affects what happens to your unvested shares if the company is sold or you are let go. |
| What is the exercise window if I leave? | Defines how long you have to buy your shares after leaving. Some companies give 90 days, others more. |
| Can I sell my shares before an IPO or acquisition? | Indicates whether you will have any liquidity before a major exit. |
This checklist helps you evaluate your employee shares in startups beyond the headline numbers. A well-informed conversation now can prevent regret later.
Red Flags and Common Pitfalls To Avoid When Signing an ESOP
Even well-meaning startups can offer confusing or incomplete equity terms. Below are common red flags to watch for when reviewing employee stock options, and why they are important.
| Red Flag | Why It is a Problem |
|---|---|
| No written stock option agreement | Verbal promises are not enforceable. Without documentation, your options may not legally exist. |
| Huge number of shares, tiny ownership percentage | Inflated numbers can mislead; always ask for the total shares outstanding to calculate real ownership. |
| Unclear or missing vesting schedule | Without clarity on when shares vest, you risk losing unvested equity if you leave or are let go. |
| Short exercise window after leaving | Some startups offer only 30–90 days to exercise options post-exit, which can force you to lose them or pay up fast. |
| No mention of acceleration clauses | You could lose unvested shares in an acquisition if acceleration terms are not defined. |
| Non-transparent valuation or strike price | If you do not know what the shares cost or what they are worth, you cannot assess the value of your offer. |
| The Option pool has not yet been approved by the board | If your options come from a pending pool increase, they may not be available or guaranteed. |
Before signing anything, clarify all terms and make sure they are included in your offer letter or option grant agreement. Startup stock options can be valuable, but only when they are structured right.
How Founders Can Build a Competitive ESOP
In today’s hiring market, cash alone will not attract or keep top talent; employee stock options are now a standard expectation.
A well-designed Employee Stock Ownership Plan (ESOP) is not just a perk; it is a strategic tool for long-term alignment, retention, and performance.
Founders must think beyond the percentage and focus on structure, clarity, and trust. The goal is to offer meaningful equity that is legally sound and understood by everyone involved.
| Component | What to Consider | Best Practice |
|---|---|---|
| Option Pool Size | How much equity is to be reserved for employees? | Allocate 10–20% depending on growth plans and headcount projections. |
| Clarity of Terms | Are the strike price, vesting, dilution, and exit scenarios clearly explained? | Share a transparent option grant letter with each employee. |
| Legal Structure | Is the ESOP documented, board-approved, and compliant with local laws? | Work with a lawyer to structure the plan under your jurisdiction. |
| Communication | Do employees understand what they are receiving and how it works? | Run equity onboarding sessions; use simple language and visuals. |
| Retention & Refresh Grants | Will you reward long-term employees beyond their initial grant? | Offer additional options after 3–4 years to retain top performers. |
| Exit Planning | What happens to unvested shares during an acquisition or sale? | Define acceleration clauses early, making sure it is fair for both sides. |
| Equity Culture | Is equity seen as part of company DNA, not just a line in the offer letter? | Reinforce it in your mission, town halls, and performance reviews. |
A competitive ESOP shows that you are building something big and that you want your team to share in the upside. The most successful startups do not just give equity; they build ownership cultures around it.
Future Trends in Startup Equity – What Is Changing Today?
Startup equity is evolving fast. Today, it is no longer just about getting shares; it is about understanding them, trading them, and expecting more fairness and transparency. Both founders and employees are demanding smarter structures, simpler terms, and real value, not just paper promises.
Here are the most important trends shaping the next phase of employee stock options:
Tokenised Equity and Blockchain-Based Stock Plans
Equity is going digital. More startups are moving away from traditional spreadsheets and legal agreements, opting instead for blockchain-based tools that offer speed, security, and programmability.
How Tokenised Equity Is Changing the Game
| Aspect | Traditional Equity | Tokenised/Blockchain Equity |
|---|---|---|
| Ownership Tracking | Paper certificates or spreadsheets | On-chain records, fully transparent |
| Vesting | Manual or HR-led tracking | Automated smart contracts |
| Transferability | Usually restricted until IPO or exit | Programmable trading under set rules |
| Access to Liquidity | Only after the acquisition or IPO | Potential for early liquidity via token markets, where legal. |
| Adoption Stage | Standard for most companies | Emerging, especially in Web3 and DAOs |
Transparency and Negotiation Tools Become Standard
Startups are being pushed to treat equity like salary, which is clear, trackable, and negotiable. Employees now expect detailed breakdowns and ongoing access to the real value of their employee shares in startups.
Modern Equity Transparency Tools
| Tool or Practice | Purpose | Why It Matters |
|---|---|---|
| Cap Table Simulators | Show what % your shares represent | Helps employees understand the dilution impact |
| Equity Value Dashboards | Display real-time market value of shares | Makes equity offers feel tangible, not theoretical |
| Offer Letter Breakdowns | Detailed explanation of vesting, strike price, and total shares | Builds trust at the hiring stage |
| Public or Semi-Public Valuation Updates | Share price updates post-fundraising | Keeps teams aligned with company growth |
| Standardised Equity Negotiation | Equity is treated like base salary in discussions | Employees feel empowered and informed |
Global Talent, Global Equity Expectations
Remote teams are the norm today, and so are global equity comparisons. Founders must now balance local salary benchmarks with global fairness in startup stock options.
How Globalisation Is Reshaping Equity Expectations
| Factor | Before (Pre-Remote Work) | Now |
|---|---|---|
| Equity Allocation | Lower for non-HQ or local hires | More standardised across all geographies |
| Access to Stock Plans | Limited by country and legal structures | Startups offering multi-country equity schemes |
| Cultural Awareness | Employees are less aware of equity norms | Increased equity literacy worldwide |
| Compensation Philosophy | HQ-centric equity culture | Equity parity across international teams |
| Tools Used | Manual, region-specific agreements | Global equity platforms (e.g., Carta, Deel, Capbase) |
Conclusion
Today, employee stock options are no longer just a hopeful bonus; they are a critical part of startup compensation.
Fairness now means transparency, education, and alignment between founders and teams. If you are offering or accepting equity, knowing how it works, and what is standard is essential to making smart, future-proof decisions.
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Frequently Asked Questions (FAQs)
What is the average stock option for a startup?
It depends on the company’s stage and your role. At the seed stage, early employees may receive between 0.25% and 1%. As startups grow (Series A and beyond), equity percentages shrink due to dilution and increased company value.
Is 1% equity in a startup good?
Yes, if offered at the right time. For early hires, 1% can be a meaningful stake, especially in a high-growth startup. But its true value depends on the company’s valuation, dilution history, and exit potential.
Always consider the percentage, strike price, and vesting terms together.
How much stock options should I give employees?
It varies by role, seniority, and hiring stage. Founders typically reserve 10–20% of the company’s equity for an employee stock option pool (ESOP). For example:
- Engineers: 0.1% – 0.75%
- Product Leads: 0.5% – 2%
- Executives (COO, CTO): 1% – 5%
Use a structured equity framework to keep offers fair and aligned with market benchmarks.
How much equity should I give startup employees?
There is no universal answer, but fair equity aligns with the employee’s impact, the company’s stage, and the risk they are taking. Early-stage startups give more equity and less salary; later-stage startups offer less equity but more job security and cash.
Are stock options worth it at a startup?
They can be, if the company grows and you stay long enough to vest. Stock options offer long-term upside, but they are not guaranteed income. Understand vesting, dilution, exit plans, and exercise costs before betting on equity alone.
Can I sell my stock options before an IPO?
In most cases, no, unless the company allows secondary sales or offers a buyback plan. Liquidity typically comes after an acquisition or IPO, but this is changing in some startups with early liquidity programmes.
What is a fair vesting schedule for startup equity?
The standard vesting schedule is four years with a one-year cliff, meaning 25% of your options vest after the first year, and the rest vest monthly or quarterly over the next three. This protects both the company and the employee.
What is the difference between RSUs and stock options?
RSUs (Restricted Stock Units) are granted shares that vest over time; you do not need to buy them. Stock options give you the right to purchase shares at a set price later. RSUs are common in mature startups; options are more common in early-stage companies.
What does a 409A valuation mean for employees?
In U.S. startups, a 409A valuation sets the fair market value of common stock, which determines your strike price. A recent 409A ensures your equity is compliant and valued fairly.
