How do I assess the value of equity offered by my employer compared to a salary raise?

Question

I work for a small-to-mid-sized (~20 employees) tech startup in Europe. I was hired two years ago as one of the first employees after the founders. When I joined, we had an agreement that after a certain amount of time, and when certain business criteria are met, I will be offered a raise and a percentage of equity. Well, time for negotiations have come and I really have no idea of how to evaluate such offers. My current salary is OK, but based on my rather specific skill set I know I could earn more somewhere else. Also, while I know that I can be replaced, I am currently in a key position for the company's products, and I think they would have a hard time finding someone quickly, and would have to pay this person definitely more than they pay me now. They will come up with some numbers soon, and I have not the slightest idea of how I evaluate, lets say a raise of X plus Y percent of some sort of shares. While I can tell if business is going well or not due to the number of projects n my desk, I have not the slightest information about the company's finances, and I don't think that they will let me check the books (and even then I wouldn't really know what to look for).

What do I do here? Apart from my personal situation, how do I decide if the offer is good or not?

If it helps, the company is based in Asia, but I work in Europe and under European law.

Answer 1

Apart from my personal situation, how do I decide if the offer is good or not?

Unless the offer is much better or worse than expected, in which case you already know the answer, I do not think your personal situation can be separated from your decision / valuation of the offer.

1. What are your short term and long term financial goals?
   • Are you able to pay your bills on the lower salary?
   • What sacrifices are you/your family making to balance your budget?
2. Overall, do you enjoy working there more/less than somewhere you might make more?
   • Will you enjoy your work more if you are a part owner?
   • Do you expect to have more discretion once you are a part owner? Do you want more?

3. Minority shareholder protections

   • If they will not let you see the books, why?
   • Who can see the books? What are their incentives?
   • Does one person control the majority of the shares?
   • How much do you trust the controlling shareholder(s)?
   • Have any other minority shareholders left the company and what was their experience?

   • How committed do you believe the current owners are to the growth of the business?

   • Would you be willing/able to stop a related party transaction if it enriched the controlling shareholder at the expense of the minority holders?

4. How much risk are you comfortable taking? What is the risk?

   • If it fails, how valuable do you think the experience will be for your future prospects?
   • Do you expect to learn more as a part owner than you would as an employee?
   • If it fails, do you have other assets/income sources to rely on?
5. What are the tax consequences of accepting the shares?
6. Would you lose any worker protections or other benefits?

The value of the shares to you might be very different from the market price / what you could liquidate them for. For #3 and #6, you may want to speak to a local attorney. For #5, talk to a local accountant.

Answer 2

SImple.

Unless the company is publicly traded or will be publicly traded within 24 months, OR unless you are offered enough equity to demand a seat on the board...

...the shares have a value of 0.

You have a market value. Demand it in cash.