Money At Work
What an equity or share scheme actually is, in plain terms
Share-based pay is offered widely and explained badly, and the mechanics that decide whether it is worth anything are usually in the documents nobody reads.
By Julien Perrot3 min read
It is a conditional future claim, not money
The single most useful reframing is that a share award is not compensation you have received. It is a conditional right to receive something later, subject to conditions that are set by the employer and written down. Until those conditions are met, it is a claim rather than an asset, and the difference matters enormously when comparing offers.
This is why headline compensation figures that add a share award to a salary can be misleading. The salary arrives regardless. The award arrives only if you are still employed, only if the conditions are satisfied, and only at whatever the shares are worth at that point — which may be more than the figure quoted, less, or nothing at all.
Vesting is the part that decides everything
Vesting is the schedule on which the award becomes actually yours. It usually runs over several years, and it commonly includes an initial period before anything vests at all, after which portions are released at intervals. Leave before that first point and, in most schemes, you leave with nothing from the award.
This is deliberate. Share schemes exist partly as reward and substantially as retention, which is not sinister but should be understood clearly by the person accepting one. What it means practically is that your leaving date has a financial consequence that a purely salaried employee does not face, and that resigning shortly before a vesting date is an expensive decision.
It also means the value of an offer depends on when you would actually receive things, not on the total quoted. An award of the same headline size can be worth very different amounts depending on whether it releases evenly, weights towards the later years, or requires performance conditions on top of time.
The distinction between options and shares
Broadly, some schemes grant you shares, or a right to receive shares, at no cost to you. Others grant options, which are the right to buy shares at a price fixed when the option was granted. An option is only worth exercising if the share price is above that fixed price, and if it is not, the option is worth nothing while still having appeared in your compensation package.
There are many variants and the terminology differs between countries and schemes. What is common to all of them is that the governing document tells you which one you have, what conditions apply, and what happens if you leave for various reasons. Reading it once, properly, at the point of joining is not excessive diligence — it is the only moment at which the terms are still negotiable, and the only reliable source, since colleagues frequently describe their own scheme inaccurately.
Liquidity, and whether the shares can be sold
A share in a publicly traded company can usually be sold, subject to blackout periods and whatever internal rules apply to employees. A share in a private company frequently cannot be sold at all, or can only be sold in specific circumstances that the company controls. That difference is enormous and is regularly glossed over in recruitment conversations.
Valuations for private companies are also estimates produced under particular rules and at particular moments, and they are not prices anybody has agreed to pay you. Treating such a valuation as cash in hand has left a lot of people disappointed over the years, in good economic conditions and bad ones.
Tax, risk and where to get real advice
Share schemes carry tax consequences that vary by country, by scheme type, and by when things happen — at grant, at vesting, at exercise, at sale. Some jurisdictions offer specifically advantaged schemes with conditions attached. Getting this wrong can produce a tax bill on paper gains you never realised in cash, which is an unpleasant category of surprise and a well-documented one.
This is genuinely a matter for a qualified tax or financial adviser familiar with your country, and it is one of the few workplace money questions where the cost of proper advice is easy to justify. There is also a concentration point worth naming: if a meaningful part of your pay depends on the same organisation that supplies your salary, then your income and that holding fall together if the business struggles. Whether that concentration is acceptable is a personal financial question rather than a workplace one, and it deserves the same qualified attention.
Common questions
Should I count equity when comparing two offers?
Count it at a discount and separately from salary, because it is conditional and the two are not the same kind of thing. Ask what the vesting schedule looks like, whether the shares can be sold, and what happens if you leave, then compare the guaranteed portions directly.
What happens to unvested shares if I am made redundant?
It depends on the scheme rules, which sometimes distinguish between leaving voluntarily and being let go, and sometimes do not. This is precisely the sort of clause worth reading before you need it, and worth asking about in writing if the document is ambiguous.
Is it worth participating in a discounted share purchase plan?
That is a financial decision rather than a workplace one, and it turns on your own circumstances, the discount, any holding period and the concentration risk described above. Someone qualified can walk you through it properly; a general rule from an article cannot.
Deputy editor, After the First Job
Julien covers first months, managing up, money at work and the questions readers actually send in and would rather show the working than assert the conclusion.
