[repsilat]

For public companies you should value stock grants above their face value, because of the optionality: If the price goes down you can quit and get another job, if it goes up you get a raise. And stocks tend to go up, so 4-year grants have raises baked in, and most companies don't consider these raises (IIRC Amazon and Stripe do), so they still give regular raises and refresher grants.

[jedberg]

The discount is to account for risk. Imagine an offer that is 100% stock. If they stock goes down, your comp goes down with it. That is what is being accounted for.

> And stocks tend to go up

Only lately. Stock compensation sucked around 2001 and 2008.

[repsilat]

Risk (well, "variance") increases the value of optionality.

Assume that there is a job market with lots of jobs. Each will hire you for your market-rate total compensation, no stock cliffs, no job-seeking costs. Spherical cow. Say also that you can tell the variance on stock compensation, but you can't guess at future performance.

One strategy might be to go to an all-cash job and make your market rate forever. That's a lower-bound on the best expected future earnings. But a better strategy is,

- Join a high-variance company,

- If/when your pay drops below the market, find another high-variance company.

With this strategy your expected earnings are higher than your market rate, even if the expected earnings at every job is the same. And the outperformance scales up with the variance.

[jedberg]

Yes, mathematically in a perfect spherical cow world, you are correct.

But I live in the real world. And in the real world, you can't switch jobs instantaneously back and forth, like you can trade stocks. In the real world there may not be a job available at the market rate. In the real world it takes months to find a new job even if there is one, and then it's even harder to actually get market rate.

So in the real world it make more sense to discount stock compensation compared to cash compensation to account for all of these things and the risk you take on by accepting stock based compensation.

[sidlls]

A 40% discount on RSUs at a public company is perfectly reasonable: you will have to sell to cover the taxes as soon as they vest, meaning for every 10 shares in your grant, 3-4 will be liquidated before you even see them just to cover the taxes on the vesting. Add a modest discount for the fact that you might leave prior to the next vesting date, and 40% might even be a bit optimistic.

[repsilat]

True enough, provided you also apply a 40% discount to marginal salary increases.

[sidlls]

Unless your contract specifies guaranteed salary increases why would you count it at all? Salary increases aren't like RSUs.

[repsilat]

I meant increases in offered/negotiated salary. A marginal dollar of salary gets taxed the same way as a marginal dollar of vesting shares, so discounting one in the offer because of taxes makes sense if you discount the other in the same way.

You shouldn't trade away a dollar's worth of shares for 60 cents more salary just because of taxes.