Compensation Glossary

Plain-English definitions of key compensation terms. Click any term to learn more and use our calculators to model your own compensation.

Last updated: July 27, 2026

RSU (Restricted Stock Unit)

A form of equity compensation where employees receive company stock that vests over time. Unlike stock options, RSUs don't require any payment to acquire. They're granted to you and become yours as they vest. RSUs always have some value as long as the stock price is above zero, making them lower-risk than options. Most RSU grants have a 4-year vesting schedule with a 1-year cliff, meaning you receive no shares until completing one year of employment, then shares vest periodically (monthly or quarterly) over the remaining three years.

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Vesting

The process by which equity compensation becomes yours over time. When shares vest, they transfer from being a promise (granted but not owned) to actual ownership. Vesting schedules exist to incentivize employee retention: if you leave before fully vesting, you forfeit unvested shares. Common vesting schedules run 4 years with monthly or quarterly vesting after an initial cliff period. Understanding your vesting schedule matters for financial planning and career decisions.

RSU Vesting Calculator →How RSUs Work →

Cliff

A cliff is the minimum period you must work before any equity vests. The most common cliff is 1 year: if you leave before completing 12 months of employment, you receive no equity from that grant, even if you worked 11 months and 29 days. After the cliff, a large portion (typically 25%) vests immediately, and the remainder vests on a regular schedule. The cliff exists to protect companies from employees who leave shortly after joining.

RSU Vesting Calculator →How RSUs Work →

Refreshers

Additional equity grants given to existing employees, typically on an annual basis. Refresher grants help maintain your total equity compensation as initial grants vest out. For example, if you received a 4-year RSU grant when you joined, by Year 3–4 you may have less unvested equity. Refresher grants add new shares to your total. The size of refreshers varies by company performance, individual performance, and company policy. Not all companies offer them.

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Equity Compensation

Any form of compensation that gives employees an ownership stake in the company. The most common types are RSUs (Restricted Stock Units) and stock options. Equity compensation aligns employee interests with company success: when the company does well, employees benefit. At public companies, equity is liquid and can be sold. At private companies, equity has potential value but can only be realized at an exit event (IPO, acquisition, or secondary sale). Equity typically has different tax treatment than salary.

RSUs vs Stock Options →Salary vs Equity →

Total Compensation

The complete value of everything you receive from your employer, not just base salary. Total compensation (or 'total comp') typically includes base salary, variable compensation (bonuses), equity (RSUs or options), and sometimes benefits like 401k matching, health insurance, and perks. When comparing job offers, total compensation over multiple years gives a more accurate picture than base salary alone. Tech companies especially rely on equity as a major component of total comp.

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Stock Options

A form of equity compensation that gives you the right to purchase company stock at a fixed price (strike price) in the future. Unlike RSUs, options require you to pay the strike price to acquire shares. If the stock price rises above your strike price, you can buy low and sell high for a profit. If the stock price falls below your strike price, options become worthless ('underwater'). Options are more common at early-stage startups, while RSUs are typical at public companies.

RSUs vs Stock Options →Total Compensation Calculator →

Strike Price

The fixed price at which you can purchase shares when exercising stock options. Strike price is set when options are granted, typically based on the company's 409A valuation at that time. Your profit from options is the difference between the current stock price and your strike price. If the stock is at $50 and your strike is $10, each option is worth $40 in profit (minus taxes). If the stock drops to $8 (below your $10 strike), the options are underwater and worthless.

RSUs vs Stock Options →

Target Bonus

The expected bonus payment when performance meets 100% of goals. Your actual bonus may be higher or lower depending on company performance, team performance, and individual performance. Target bonus is usually expressed as a percentage of base salary (e.g., '15% target bonus'). Some companies pay bonuses quarterly, others annually. Unlike base salary, bonus is not guaranteed. It depends on hitting performance targets and company financial health.

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