Equity Grant Letter

An equity grant letter is the only contract most employees have with their company about what they’ll actually own. It specifies whether you get options or RSUs, how many, at what price, vesting rules, and what happens when you leave. The details here can differ wildly from what your recruiter verbally promised.

What goes in a grant letter

A complete equity grant letter includes:

• Type: Options (ISO or NQSO) or RSUs?
• Quantity: Number of options or units granted.
• Grant date price / Exercise price: The fixed price per share (options only, or the fair-market-value basis for RSUs).
• Vesting schedule: Standard is four-year vest with one-year cliff, but companies vary (two-year cliff, straight-line vesting, etc.). The letter states the exact schedule.
• Expiration date: When unexercised options expire (usually 10 years from grant date).
• Post-termination exercise window: How long after leaving you have to exercise.
• Acceleration provisions: Whether equity accelerates on change of control, termination, etc.
• Tax status: For options, whether they’re ISO or NQSO.
• Plan reference: Which stock option plan or RSU plan governs this grant.

Most grant letters also reference the governing plan document and state that the plan controls in case of conflict.

Grant letter vs. the recruiter’s promise

This is where things get messy. Your recruiter might say: “We’re offering you $200k total comp: $140k salary, $60k in equity.”

The grant letter then says: 3,000 RSUs vesting over four years, at a $20 grant price (resulting in $60k current value). But if the stock drops 50% before you leave, those RSUs are worth $30k when you vest them. The $60k was a snapshot value, not a guarantee.

Or the recruiter might say: “Equity double-triggers on merger; you get accelerated vesting.” The grant letter might say: “Double-trigger, 25% acceleration only, NSOs.” You thought 100%; the letter says 25%. The letter controls.

Savvy candidates negotiate the grant letter before signing the offer, with particular focus on:

• Vesting schedule (are you comfortable with one-year cliff or four-year total vesting?)
• Acceleration terms (do you want acceleration on merger?)
• Post-termination exercise window (90 days is standard but can be negotiated to 6+ months for key employees)
• Exercise price (for private companies, is this at fair market value, or discounted?)

After you’re hired, amending a grant letter is much harder. Companies rarely renegotiate equity terms mid-tenure unless promoting you or awarding a new grant.

For private vs. public companies

Public companies: Grant letters are formulaic. They reference the publicly-filed stock option plan, use the official closing stock price as the grant price, and specify standard post-termination windows (90 days). Little variation; little to negotiate.

Private companies: More variation. The grant letter might be much longer, specifying unique vesting schedules or acceleration terms. Private company grant letters often include “409A valuation” language (confirming the grant price is fair market value) to protect against tax reclassification later.

Typical terms and where they vary

Startups often offer more generous terms because they compete on upside. Mature companies are more standardized because they have enough demand for talent to use boilerplate terms.

What’s missing from grant letters: implicit vs. explicit

A good grant letter is explicit about vesting, acceleration, and post-termination windows. Many grant letters are vague about taxes. They’ll say “you are responsible for any taxes” but won’t explain that exercising an ISO triggers alternative minimum tax, or that vesting an RSU means immediate ordinary income withholding.

It’s smart to ask HR for a summary of tax consequences when you receive a grant letter. Many companies provide a basic one-page tax summary as an attachment.

Amendments and refreshes

Your original grant letter isn’t the only equity you get. Many companies make annual refresh grants (new equity grants to retain employees). Each refresh is a separate grant letter with its own vesting schedule. Over a 5-year tenure at a growth company, you might have 5–10 separate grants, each vesting on a different schedule.

If the company amends its stock option plan (e.g., extending the post-termination window), does that affect existing grant letters? The answer is usually “yes for new grants, no for existing.” Existing grant letters control their own terms. New grants fall under the new plan rules.

Disputes and the grant letter hierarchy

If there’s a conflict between your grant letter and the stock option plan, the grant letter usually wins. If there’s a conflict between your grant letter and a verbal promise from your recruiter, the letter wins. This is why reading the letter (and the plan summary) is critical.

Class-action lawsuits have been filed when companies tried to enforce grant letters retroactively in unexpected ways (e.g., requiring executives to repay equity upon retirement). The written terms of the letter are your legal protection.