If your offer letter gives you a choice between 5,000 options or 2,000 RSUs (similar grant-date value), which do you take? The answer depends on (a) how confident you are in the company and (b) how much risk you can afford.
The RSU case
RSUs are certainty. At vesting, you receive shares worth whatever the company is worth at that time. No purchase decision. No AMT. The downside is the 'RSU tax trap': you owe ordinary income tax on shares you can't yet sell. At a high valuation, this can mean a six-figure tax bill on paper wealth.
The option case
Options are leverage. You pay a fixed strike price now, and you own the right to the upside. If the company 10x's, your option goes from worthless to worth multiples of its initial paper value. If the company stays flat or declines, your option might expire worthless.
The math at a winning company
Take a typical scenario: company is worth $1B today, you join with either 5,000 options at $5 strike or 2,000 RSUs at $25 fair value. Same paper value at grant. Five years later, company is at $10B.
- Options: spread = ($50 − $5) × 5,000 = $225K. After exercise cost ($25K) and LTCG tax ($45K): $155K net.
- RSUs: 2,000 × $50 = $100K gross. After ordinary income tax (37% federal + state ~5%): $58K net.
Options out-earn RSUs by ~2.7x in this scenario. The leverage compounds. At a less successful company, RSUs win because they don't go to zero — they just become smaller.
If you can afford to lose the strike-price money and have time to clear AMT, options at a high-confidence early-stage company are usually the better bet. At a late-stage company two years from IPO, RSUs are usually the safer pick.