Compare Salary vs. Equity (RSUs)

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u/jiujitsu · Joined Oct 2024

Should you take a higher salary or trade it for company equity? Compare the potential returns of RSUs vs. cash and make an informed decision!

Last update Nov 2024
  • Scenario 1: Equity Value Potential
  • Scenario 2: Salary Investment Returns
  • Which One Is Higher (%)

Compare the total value of taking a higher salary vs. accepting company equity. Note that equity (RSUs) isn't liquid—it can't be sold anytime and depends on the company's exit or market conditions. Understand the trade-offs before deciding!

# Years from Now

Try your numbers:

Enter the annual salary you'd earn without company equity. This is your higher salary option for comparison.

A =

Enter the reduced annual salary you'd accept in exchange for RSUs. This is your lower salary option with equity.

B =

Enter the percentage of the company’s equity offered to you as RSUs. Typically a small fraction, like 0.01%.

C =

Enter the current valuation of the company offering you RSUs. For example, a late-stage company might be valued at $1 billion.

D =

Enter the estimated annual growth rate of the company's valuation. Typical rates range from 15% to 30%.

E =

Enter the estimated percentage of equity value you’ll retain after dilution and investor preferences. A common assumption is 70-90%.

F =

Enter your estimated marginal tax rate for ordinary income, including federal and state taxes. For many, this is around 30%.

G =

Enter the tax rate for long-term capital gains. The federal rate depends on your taxable income: 0% for low-income earners, 15% for most, and 20% for high-income earners. State taxes may also apply.

H =
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Time Value Assumptions

Heads Up!

If you're using Cost Basis (cb) for calculating capital gains:

Please be aware that very few countries currently use inflation-indexed cost basis. Double-check your local tax rules before publishing.

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How is Cash Value calculated?

Calculate the value of company equity over time. Start with the one-time income tax on RSUs received at vesting, accounting for the lost opportunity to invest this tax amount. Project the equity's growth based on the company valuation and dilution at exit. Subtract taxes on capital gains to determine the final cash value.

Decisions / Expectations

(Expressions are evaluated at Year 0 only.)

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Calculations

(Expressions are evaluated at every year.)

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