GX Report | RSUs vs. Options: A Founder’s Guide to Smarter Incentives

Early-stage compensation isn’t just payroll—it’s strategy. The right mix of equity and milestones can keep great people on the team, focus effort on what matters, and protect your runway and cap table. Here’s a founder-friendly distillation of current thinking on Restricted Stock Units (RSUs), stock options, and performance-vesting—plus how to apply these tools from Day 0 through Series A.

What RSUs actually do (and why they’re back in vogue)

RSUs are promises of future stock delivered on a vesting schedule. Unlike options, they have value even if your share price is flat (no strike price), and they can be tied to time (simple) or to performance (PSUs). Post-2005 accounting changes pushed companies to rethink equity structures, and RSUs gained ground as a cleaner, more predictable tool for retention and alignment. For founders, that translates into two practical strengths:

• Retention: Employees only receive the shares as they vest—staying power is rewarded.

• Clarity: Value is easier to understand than options’ “maybe” upside, especially in volatile markets.

Where performance-vesting fits (and where it doesn’t)

Performance Stock Units (PSUs) attach vesting to outcomes: product milestones, revenue, gross margin, customer NPS, security certifications, etc. That can sharpen focus, but complexity is the enemy. A growing body of research suggests that simpler pay plans and fewer, higher-signal metrics are linked to better long-run performance; too many dials can distract or even conflict. For an early startup, 1–2 top-tier metrics beat a dashboard of 10.

RSUs vs. Options: simple decision rules for founders

Use this quick grid to pick the right instrument at the right time:

• Pre-seed/Seed (very high uncertainty): Default: Options with a standard 4-year vest + 1-year cliff. Why: Maximizes perceived upside for early joiners; easier on cash. When to add RSUs/PSUs: Rare at this stage—unless you need certainty (e.g., senior hire needs guaranteed value) or you’re aligning to a must-hit product milestone.

• Late Seed/Series A (clearer traction): Default: Blend of options + selective RSUs. Why: RSUs help retain specialized talent that values certainty; options keep upside excitement. PSUs: Tie a small slice (10–25% of equity grant) to 1–2 milestone metrics (e.g., SOC 2 Type II by Q4; $1M ARR with <2% churn).

• Post-A/Scaling: Default: Broader use of RSUs; options primarily for high-leverage roles or refreshers. PSUs: Expand cautiously—add one metric at most per grant cycle to avoid overload.

How to choose great performance metrics

Apply this filter before you put any metric in a grant:

1. High signal, low noise. Prioritize metrics teams can directly influence (e.g., shipped roadmap milestones, gross margin dollars, verified security certifications) over noisy stock-price proxies.

2. Objective and auditable. If you can’t measure it cleanly, don’t vest on it.

3. Few and focused. One outcome metric + one guardrail is plenty (e.g., “$X in ARR and NRR ≥ 100%”).

4. Time-boxed. 12–24 month windows keep urgency without whipsawing incentives.

Vesting designs that actually work

Steal these founder-tested patterns and adapt:

• Time-based RSU (simple retention): 4-year vest, 1-year cliff, then monthly/quarterly vesting. Use for roles where consistent contribution matters more than one binary outcome.

• Milestone PSU (single North Star): 50% vests on GA release of v1.0 to paying customers; 50% vests on $1M ARR with ≥60% gross margin. Include partial vesting bands (e.g., 0%, 50%, 100%, 125% for stretch) to avoid “all-or-nothing” frustration.

• Hybrid (most common from late Seed): 75% time-based + 25% PSU tied to one mission-critical milestone. Keeps retention strong while sharpening focus.

Keep it simple: the anti-complexity checklist

Before you finalize a comp plan, run this:

• One-pager rule: Can your grant logic fit on one page?

• Two-metric cap: Are you at ≤2 performance criteria?

• Direct control: Can the recipient materially move each metric?

• Audit-ready: Are definitions, data sources, and measurement dates unambiguous?

• Cap table aware: Have you modeled dilution and refreshers through Series B?

• Refresh rhythm: Do you have a predictable annual/18-month refresh cycle?

Practical templates you can copy

Offer Letter Equity Section (Seed-stage engineer)

• 0.35% in options, 4-year vest, 1-year cliff.

• Annual refresher target: 0.10% in options.

• Double-trigger acceleration on change of control (CoC + termination).

Senior GTM Leader (Late Seed)

• 0.20% in RSUs, 4-year vest, quarterly.

• 0.05% in PSUs: vests at 0/50/100/125% based on ARR of $750k/$1.0M/$1.5M/$2.0M by 12 months post-start, with ≥98% logo retention.

• Annual refresher: mix of RSUs/options tied to territory expansion milestones.

Staff Engineer (Series A Scale-up)

• 0.15% RSUs time-based + 0.05% PSUs for v2.0 shipped to 3 design partners (objective acceptance criteria).

• Refresher at 12 months based on impact rubric (documented in performance cycle).

Pro tip: For very early hires who value certainty (visa constraints, life events), modest RSU slices can be the difference-maker—even at Seed. Balance with options to maintain upside culture.

Founders’ playbook: sequencing your comp strategy

1. Pre-seed: Standardize option grants + cliffs; publish a transparent leveling rubric.

2. Seed: Introduce RSUs only for targeted roles; pilot one PSU metric tied to your must-win milestone.

3. Late Seed/Series A: Formalize a Comp Committee (even if informal), codify 1–2 PSU metrics company-wide, and schedule annual refreshers.

4. Always: Keep grants legible, data sources tight, and the story simple—so your team knows exactly how to win.

Bottom line for new founders: RSUs are a powerful retention and clarity tool; options keep the upside spark alive. Use both—sparingly and simply—with one or two high-signal milestones. Your compensation plan should be a compass, not a maze.