Explaining Equity in an Offer Letter: What to Tell Candidates

List these items in a short table or bulleted block:

• Number of options or shares and what they represent as a percentage of fully diluted shares as of a stated date.
• Exercise price per share, or a note that it will be set at the board's approval date based on the latest 409A valuation.
• Vesting schedule, including the start date, cliff and monthly or quarterly vesting after that.
• Grant type, ISO or NSO, and a note that tax treatment differs.
• Post-departure exercise window, meaning how long they have to buy vested shares after leaving.
• Total shares outstanding and last valuation date, so the percentage has context.

Say the offer is 40,000 options in a company with 10,000,000 fully diluted shares, an exercise price of $1.20 and four-year vesting with a one-year cliff. In this example, the candidate holds 0.4 percent, and after the first year 10,000 options vest. Showing a worked example like this helps candidates understand what they're actually being offered.

Use one plain sentence for each. Stock options give you the right to buy shares at a set price later, and you only benefit if the company's value rises above that price. Restricted stock is actual ownership you receive up front, subject to vesting.

Then explain exercise: buying vested shares costs money, may create a tax bill and doesn't make the shares liquid. Candidates often assume options are like a bonus, so state directly that they have value only if the company is acquired or goes public, or a secondary sale happens. Keep the tone factual, not promotional.

Avoid anything that sounds like a forecast or a promise. Don't say what the shares are worth, what they'll be worth, or that the candidate will make a specific amount. Don't quote the preferred price as if it were the value of their common stock.

Use these safe patterns instead:

• "The board sets the exercise price based on an independent valuation at the time of the grant."
• "The percentage shown is as of today and will change if we issue more shares."
• "There's no guarantee of any value, and you may lose the amount you spend exercising."
• "Talk to your own tax adviser about the tax effect."

Also don't call a grant final. Say the offer is subject to board approval, since the grant doesn't exist until the board acts. The issuance steps explain the sequence.

Show both parts of compensation side by side, but keep equity separate from cash. Candidates compare offers on a mix of cash, benefits and equity, and a well-explained grant can offset a lower salary while a confusing one can lose the hire.

For context, the median US software developer wage was $135,980 in May 2025¹, so engineers considering your company will weigh your equity against a strong cash alternative. And replacing a candidate who walks away has a cost: average cost-per-hire was $5,475 for nonexecutive roles and $35,879 for executives².

Ask your recruiter or hiring manager to walk each candidate through the explainer live, invite questions and follow up in writing.

Use this outline as the skeleton, then fill it from your equity plan. Have counsel review the wording.

1. Your grant: number of options, type, percentage of fully diluted shares as of a date.
2. Price: exercise price or how it will be set, and the date of the latest valuation.
3. Vesting: start date, cliff, schedule.
4. If you leave: what vests, how long you have to exercise, and what happens to unvested options.
5. What could happen next: new shares issued, dilution, sale or IPO, and what you'd receive.
6. Risks and disclaimers: no guarantee of value, tax varies, subject to board approval.
7. Who to ask: a contact for questions and a suggestion to consult a tax adviser.

Keep the numbers consistent with your option pool plan and cap table, and link to it from your offer template.