Jargon Buster

Modified on Wed, 6 Aug at 9:21 AM

Navigating your ESOP grant or stock options can feel overwhelming — especially when you’re hit with financial or legal terms you’ve never seen before. This guide breaks down the most common ESOP-related jargon in simple language, so you can understand what you’re being offered and what it means for you.

Term	What It Means (in simple terms)
ESOP (Employee Stock Ownership Plan)	A program that gives employees ownership in the company, usually through shares or stock options.
RSU (Restricted Stock Unit)	Shares granted to you that become yours only after certain conditions (like time or performance) are met. You don’t have to buy them.
Stock Options	A right to buy company shares at a fixed price (the strike price) in the future — usually if the company’s value increases.
ISO (Incentive Stock Option)	A type of stock option with special tax benefits, available only to U.S. employees.
NSO (Non-Qualified Stock Option)	A more common type of option used for both U.S. and non-U.S. employees; taxed as regular income when exercised
Strike Price (Exercise Price)	The price you pay per share when you exercise your stock options.
Vesting	The process of “earning” your equity over time or after meeting goals. You don’t get it all at once.
Cliff Vesting	A delay where no equity is earned until a certain period (e.g., 1 year), then a big chunk vests.
Graded Vesting	Equity is earned gradually over time, like monthly or yearly.
409A Valuation	A formal, independent valuation used by U.S. companies to determine the fair market value (FMV) of their shares.
Fair Market Value (FMV)	The current estimated price of a share, used to set your strike price.
Underwater Options	When your strike price is higher than the company’s current share value — so exercising them would cost you more than they’re worth.
Exercise	The act of buying your shares by paying the strike price.
Liquidity Event	A situation where you can finally sell your shares (e.g., IPO, acquisition, or buyback).
IPO (Initial Public Offering)	When the company lists its shares on a stock exchange and becomes public — allowing employees to sell.
Tender Offer	A liquidity event where the company or investors offer to buy your shares at a set price.
Buyback	When the company repurchases your vested shares — often to give you a chance to cash out.
Post-Termination Exercise Window (PTEW)	The limited time you have to exercise your options after leaving the company — often 30–90 days.
Acceleration	A clause that speeds up vesting, usually in case of acquisition or job loss. Can be “single-trigger” or “double-trigger.
Single-Trigger Acceleration	Shares vest immediately upon company sale or acquisition.
Double-Trigger Acceleration	Shares vest only if the company is sold and you are laid off or your role changes significantly.
Dilution	When more shares are issued (e.g., during a funding round), making each share worth a smaller portion of the company.