If you are a recent- or almost-graduate only just wading into the world of work, job searches, interviews, and the pre-boarding phase are likely alien to you. The pre-boarding phase, especially, can make you feel like a fish out of water; the terminology thrown around by prospective employers can feel like a foreign language. As such, I’ve supplied a glossary of sorts to acquaint you with this vocabulary so that you can avoid a lengthy Google search or combing through a finance textbook:
Equity & Vesting
Equity: An ownership stake in a company, usually in the form of stock or stock options. It’s the part of the offer with the most potential for appreciation; it’s also the most unstable.
Vesting: The gradual process of earning equity over time by staying at a company. Equity that hasn’t vested yet is forfeited if you leave the company.
Vesting schedule: The timeline over which your equity vests (commonly a 4-year stretch, with a 1-year cliff).
Vesting acceleration: A provision that vests some or all of your unvested equity ahead of schedule. This is usually triggered by an acquisition or a termination.
Cliff: The opening stretch you must clear before your equity begins to vest. If you leave before the cliff, you receive nothing; if you pass this milestone, the first set will vest at once. This is often a 1-year period.
Single-trigger acceleration: Acceleration that is triggered by one specific event (typically a “change in control” [total sale of a company, a merger, or acquisition by another business])
Double-trigger acceleration: Acceleration that requires two events (typically a change of control and you being let go [or materially demoted] within a set window after the sale). This is more common and more company-friendly than its singular counterpart.
Option pool: The pool of shares a company sets aside to grant equity to employees in the future. Expanding the pool dilutes existing shareholders' ownership percentage.
The Instruments
Stock option: A financial contract that arms you with the right (but doesn’t obligate you) to purchase company shares at a fixed price (the strike) later on. You profit only if your shares are worth more than the strike price at the point of sale. You purchase these shares with real money, out of your own pocket.
Strike/Exercise price: The fixed price at which you can buy company stock when you exercise your stock options. The strike price is locked in when the options are granted, and is typically based on the company’s 409A valuation. For example, 10,000 options at a $2.00 strike price cost $20,000 to exercise.
Exercise: The action of purchasing your vested option shares by paying the strike price.
Early exercise: This allows you to purchase options before they’re officially vested. If you’re given this option, it will be implemented in your Stock Option Grant Agreement. This is sometimes done to initiate the capital-gains holding period early.
Exercise window: The stretch of time you’re given to exercise vested shares upon leaving a company (Traditionally a 90-day period; however, this is changing, as some companies now offer longer windows).
ISO (Incentive Stock Option): Unlike other types of stock options, ISOs offer certain tax advantages for employees that qualify for favorable capital-gains treatment. However, exercising ISOs can trigger the alternative minimum tax (AMT) because the difference between the stock’s market value and your strike price counts as income under AMT rules; the likelihood depends on certain demographic factors.
NSO (Non-qualified Stock Option): A more flexible type of stock option; they are taxed as ordinary income when exercised, but without the tax advantages imposed on ISOs. Companies can grant these to contractors and advisors, not only employees.
PPU (Profit Participation Unit): A less common financial instrument that confers on someone the privilege to share in a company’s future profits without granting them equity. Your payout is tied to the company’s performance metrics. Some frontier-lab compensation structures use this form of synthetic equity; the mechanics vary between companies because they are custom contractual agreements.
RSU (Restricted Stock Unit): A promise by an employer to give you (the employee) company stock at a later date once certain provisions have been satisfied; it’s often predicated on time-based vesting. You don't have to pay anything to receive the stock. RSUs are common at public companies and late-stage private companies.
Double-trigger RSU (private companies): At private companies, double-trigger RSUs require two distinct conditions to be met before you receive company stock. These triggers are typically [1] time-based vesting and [2] a liquidity event (often an IPO or an acquisition). Private companies do this so their employees aren’t taxed on shares they can’t yet sell.
83b election: A tax provision that allows you to pay tax on unvested equity based on its value when granted, rather than when it’s vested. The point is to elect to pay a small tax bill now, instead of a potentially large one in the future. They are time-restricted; the election must be filed within 30 days. If you miss this window, you will forever lose the ability to file for the grant.
Valuation and Funding Rounds
Cap table: A document that outlines a company’s stock ownership framework, showing who owns what percentage of the business. It covers every share, stock option, and equity ownership in the company.
Common vs. Preferred stock: Common stock is often held by a company’s employees; preferred stock is often held by investors. Common stock represents standard company ownership; preferred stock provides specialized, broadened rights. For example, should there be a liquidity event, preferred shareholders are paid back first; common shareholders are last.
Dilution: The shrinking of your ownership percentage when a company issues new shares. Your share count stays the same; your slice of the pie decreases. For example: if you hold 1,000,000 of 100,000,000 worth of shares (1%) and the company issues 25,000,000 additional shares in a funding round, the denominator becomes 125,000,000; your 1,000,000 shares constitute 0.8% of that.
Funding round/stage: A financing event where a company raises money from its investors in exchange for equity at a set valuation. Funding rounds are categorized as follows: Pre-Seed, Seed Funding, Series A, Series B, Series C, and so on. The later a company is valued in this sequence, the more established, valuable, and risk-free it is.
Liquidation preference: The right of preferred investors to be paid back ahead of common shareholders when a company is liquidated. If a company sells at a low price, they sometimes don’t have enough money to repay their employees (common stockholders). For example, say investors hold a $100M preference in a company, and the company sells for $120M; the first $100M goes to them, leaving just $20M to be dispersed among common stockholders.
Pre-money/post-money valuation: A company’s worth before (pre) and after (post) receiving a new round of funding.
409A valuation: An independent appraisal that calculates the fair market value (FMV) of a private company’s common stock. It gets its name from section 409A of the Internal Revenue Code, which a company must comply with (by receiving an appraisal) if it plans to issue stock. A 409A valuation sets the strike price for stock options.
Compensation Mechanics
Base salary: Your fixed cash pay.
Level/leveling: A structured system for organizing job statuses hierarchically. Your assigned level/grade is linked to a specific pay band/scope and set of responsibilities. Level is often more consequential than any single negotiated number.
Performance bonus (annual bonus): A yearly bonus distributed based on individual performance. It's often given to employees who meet or exceed certain work goals, and is usually expressed as a target percentage of one’s base salary. However, a company may not be able to distribute these bonuses if it fails to meet its own revenue or profit targets.
Refresher (refresh grant): Additional equity granted after a few years to keep your total compensation competitive. Refresh grants often aim to retain employees and are either time-based or issued based on performance or promotions; if it’s time-based, they are commonly issued when your initial grant has vested halfway.
Relocation: When a company transfers an employee to a distant facility and obligates them to move locations. The company will often offer moving packages to keep the employee on board; this could be temporary housing, a cash lump sum, or reimbursement for moving expenses.
Salary band/pay range: The approved spectrum of pay for a given level and role. Your asking salary must stay within its respective range.
Sign-on bonus (signing bonus): A one-time payment offered for joining a company. This bonus is sometimes used to offset the compensation you’d be leaving behind by signing with the company.
Target bonus: The percentage of your base salary you’d receive as your annual bonus if you, your team, and the company meet their performance targets. This is usually the number that’s quoted when you’re given an offer, but the bonus isn’t guaranteed; it’s dependent on you satisfying certain metrics.
Total compensation (TC): The whole picture; all of the elements that constitute your compensation package: base salary + bonuses + equity (annualized) + sign-on perks. Compare total compensation across offers, not base salary alone; base salary doesn’t determine value when isolated.
The Negotiation
Anchor: The first number introduced in a negotiation. This figure tends to guide the range of offers that follow. That said, don’t allow this range to be restrictive if it’s inordinately unjust/unsatisfactory to you.
Verbal vs. Written offer: A verbal offer is an informal spoken discussion of intent to hire on specified terms; a written offer is the official, legally binding contract that follows.
Competing Offer: An offer you hold at the same time as another. This can inform your decision, elevate your self-worth, and act as leverage in a negotiation.
Counteroffer: A revised, remedial proposal made in response to an offer, by the candidate to the company or vice versa.
Exploding Offer: An offer with an unusually short deadline and seldom any leeway. Exploding offers are designed to create time pressure so you are forced to make a decision without having time to really consider its terms or entertain other employers.
Deadline: The date by which a company asks you to accept or decline an offer.
Leverage: Factors that strengthen your negotiating position: a market demand for your skills, competing offers, or a need/urgency on the company’s part, etc. These give you bargaining power and augment your chances of increasing your compensation.
Lowball: An offer that is unfairly below market value or the role’s standard salary range. This is an oftentimes purposeful negotiation tactic.
Walk-away point (BATNA): BATNA stands for “Best Alternative to a Negotiated Agreement.” It is your Plan B, the alternative you’d settle for if an agreement can’t be reached; it is your baseline, the point below which you’d outright decline an offer.
Liquidity & Going Public
IPO (Initial Public Offering): the process of a private company selling shares of stock to the public for the first time. In doing so, the company transitions its ownership from private to public shareholders. Although this dilutes individual equity, the added capital can help grow the business, such that its overall value may increase.
Pre-IPO: The time leading up to a private company “going public.” A pre-IPO placement commonly includes the sale of shares to private investors to raise capital before contending with the public market and all its uncertainty. These shares are sold at a discounted price.
It’s a spectrum, not a fixed status — ‘pre-IPO’ can mean very different things.
Lockup period: A window of time after an IPO during which major shareholders—executives, employees, early investors—cannot sell their shares. This typically lasts approximately 6 months and functions to prevent the market from being flooded with an oversupply of the company’s stock all at once.
Tender offer/secondary sale: A bid by investor(s) to purchase some or all of a company’s outstanding shares. The tendered price is often higher than the shares’ market price in an effort to convince shareholders to sell; their intention is to gain control of a company by owning a large portion of it. Sometimes, this is a company-sponsored event, as part of what is called a “share buyback,” where the company repurchases its own stock, providing employees and early shareholders with liquidity; this also offsets dilution.
A chance to sell some private shares before an IPO — sometimes offered by late-stage companies to give employees liquidity.
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Here’s hoping this is advantageous as you acclimate to a corporate environment. That said, bear in mind this lexicon is educational and generic; don’t take it as financial, tax, or legal advice. Equity and tax rules differ by situation. Do not read this unreservedly; verify technicalities with a qualified professional (and, for your own offer, with co&co).
