Salary vs Equity: whіch is a better deal?

To understand what is better — salary or equity, it is enough just to imagine the situation. Let’s say you have a job offer in 2 different companies — in one they promise a salary of $100,000 a year, in the other — $75,000 a year + 500 stocks. Which option to choose? We will help you compare these 2 options and figure out which one is better. Let’s start with equity, the case when a company offers the company’s assets as the basic salary. A similar option, as a rule, is offered by start-ups. The point is that early on they can’t compete with the bigger players on salaries, and to make up for lower wages they often give away a few stocks. This is a good way to attract the best talent, and chances are you will be offered equity at some point. It sounds attractive, but it is often difficult to understand how much real money you will get. What is equity or “employee stock ownership”? Equity allows you to become a stockholder, getting stocks on preferential terms. But it’s worthwhile to understand that you will not immediately receive dividends from this, this will take a few years. But even after years of waiting, you get something that completes your pay package. But if the business goes badly, then the stock price will fall. Therefore, we recommend that you think of your own capital as a possible source of income, but keep in mind that you have no guarantees. What about salary? In the case of wages, everything is much simpler, and this also has its advantages. From month to month, you will steadily receive your salary, but that’s all. No more extra perks in the future, except perhaps annual bonuses. But with a sufficient salary that will cover all your expenses and at the same time provide you with the opportunity to save something, you can create financial assets in the same way. A salary gives more security than owning stocks or other assets. And it can also increase and cover more needs as you experience. Therefore, you should think about buying a few assets from each salary and thus receive passive income. So what is better: salary or equity? The reality is that today, many start-up companies supplement their offer with options in order not to lose valuable employees. An option is a right, but not an obligation, to buy an asset in the future at a predetermined price, which is usually less than the current value of the stock. The main idea of the option is to motivate the employee to work for the company’s success. After all, now, as a co-owner, he is interested in long-term growth in profits. And in order to tie an employee to a place more strongly, options are often issued not immediately, but in parts. But this approach has some problems. At a minimum, exchanging such an option for money is not easy. Firstly, an option is not a company’s stocks, but only the right to purchase stocks. Secondly, there is no stock exchange where these stocks can be sold. Thirdly, it is difficult to assess the real value of an option, for this, you need to understand how many startups actually break through, and how many fail. But even with this data, it’s hard to predict what will happen exactly with your startup. A Google engineer in Washington receives $600,000 a year, of which $240,000 is salary, $300,000 is Google stock, and $60,000 is a cash bonus. Such success stories have one thing in common: the rapid growth in the value of the shares of the company for which the employee worked. But sometimes something goes wrong. One of the latest high-profile examples: WeWork. The company was going to go on an IPO in 2019, which was supposed to be one of the largest in history. The company was valued at $47 billion, and thousands of employees hoped to finally “cash out”, to transfer part of the shares into real money. But everything collapsed in 6 weeks. Therefore, stability is the most suitable option for those who are not accustomed to taking risks.