Are Biotech RSUs Better Than a Higher Salary? 

As a new generation enters the workforce, in-demand fields such as biotech are competing for top talent. To attract professionals, compensation packages often include competitive features beyond salary, such as equity compensation. Based in San Diego, we regularly work with local biotech employees, helping to guide them through reviewing job offers and how best to integrate their new compensation and executive benefits into their broader financial plan. A common scenario we see is when a company offers a candidate more restricted stock units (RSUs) and a lower-than-expected salary — or conversely, a higher salary with few or no RSUs. Which offer is better? 

If you’re new to the field or are considering a new position, explore the pros and cons of these two compensation packages to help inform your decision.

What to Consider with an Equity-Heavy, “Low” Salary Offer 

Some biotech companies with fewer resources, especially those in start-up or growth phases, may offer lower initial salaries in exchange for higher RSU benefits. A “low” offer is subjective and doesn’t necessarily mean it’s a “bad” offer but may refer to a below-market offer or one offset by equity.

What are RSUs?

RSUs are a form of equity compensation representing actual shares of a company’s stock. Employees gain full ownership of the shares only after satisfying predetermined criteria, such as remaining with the company for a specified period or adhering to a vesting schedule. RSUs help employers conserve critical capital for growth, reduce turnover, and share success with loyal employees.

If your offer features higher RSUs, there are several advantages and disadvantages to consider.

What are the Pros of More Biotech RSUs?

While a lower-than-expected salary offer may feel inadequate at first glance, there are financial benefits that may bridge the gap between your executive equity compensation and base salary. 

• Potentially Higher Stock Value: RSUs are tied to your company’s stock, so their value may increase if your company performs well. Sometimes, the long-term value of equity could exceed what you would have earned with standard pay raises. 
• Shared Interest: As the company performs well, the value of vested shares increases, helping to align company interests and create a sense of ownership in employees.
• Tax Benefits: Employees only pay taxes on RSUs when they vest as ordinary income, and again when they are sold as capital gains, giving you greater control over when future taxable income is realized. For example, if you sell immediately or shortly after vesting, you may reduce or eliminate capital gains while locking in value because there is less time for the stock’s value to fluctuate. Holding the stock longer than a year may qualify you for lower capital gains tax rates, giving you even more control over when taxable income is realized.
• Long-Term Investment Opportunity: Vesting may occur over several years, giving employees gradual ownership over their shares and creating a long-term approach to wealth accumulation for professionals. For example, an employee might spend a cash bonus right away, while an RSU grant isn’t available until it vests. Unlike other company stock options, employees don’t need to make an initial investment or purchase; instead, employers grant RSUs.
• Value Retention: Unlike stock options, which can put employees “underwater” if the stock price falls below the exercise price, RSUs retain some value unless the stock goes to zero.
• Avoid Lifestyle Creep: A lower salary requires careful budgeting and spending awareness, which can help reduce lifestyle creep, common among high-earning professionals. Additionally, waiting for vesting may give employees more time to evaluate decisions strategically rather than overspending or impulse spending.
• Income-Based Benefits: Staying within a lower tax bracket may help you remain eligible for certain income-based tax deductions and credits and avoid surpassing annual contribution limits for certain retirement savings accounts. 

What are the Cons of More Biotech RSUs?

As with any financial decision, there could be certain trade-offs of accepting an equity-heavy compensation package with a lower base salary.

• Complexity: There are several moving parts to managing RSUs that can be confusing to employees — such as coordinating multiple grant, sale, and exercise dates, along with tax implications, income planning, and deciding whether to sell or hold. Misunderstanding key details can lead to mistakes, such as missing key selling windows, misjudging taxes, or penalties.
• Waiting Periods: Employees must wait for their specific vesting window to own or sell their shares. In the meantime, a lower base pay may constrain cash flow. Without diligent budgeting and savings, financial strain may lead to delays in your goals or debt accumulation.
  • Blackout Dates and Restrictions: Even once vested, RSUs cannot necessarily be sold whenever you choose. You must wait for limited trading windows and ensure there are no blackout periods or restrictions, often related to insider trading rules — even on your vesting date. Waiting could impact income and tax planning for big purchases, a down payment, or other investments. Be sure to check key dates and your company’s insider trading policy to stay compliant. 
• Concentration Risk: If a significant portion of your portfolio (as well as your job) relies on your company’s success, be sure to check how value swings may affect your net worth. Your financial advisor can help you diversify away from your company or capture other opportunities.
• Tax Mistakes:
  • Underwithholding: Without proper guidance and planning, you could underwithhold and face a higher-than-expected tax bill on vesting day. Employees must ensure they adjust their tax withholdings or include sell-to-cover terms in their grant agreement to cover vested shares. 
  • Selling: Something else to keep in mind is that if you’ve held the stock for less than a year and it has appreciated, you may be subject to higher short-term capital gains taxes if you decide to sell. 
  • Double Taxation: Double taxation can occur when you sell your shares and the original cost basis is missing or inaccurate. This error makes it appear the total amount is taxable when it should reflect you already paid taxes at vesting. This could result in paying taxes twice, rather than only on your post-vesting gains. Careful recordkeeping can help avoid this issue.
• Market Volatility: Due to the nature of the industry, biotech companies often experience volatility and periods of uncertainty, making your RSUs subject to potential price swings or significant depreciation, which can impact your overall earnings.

What to Consider with a Higher Salary Offer with Fewer RSUs

The goal for most professionals is to secure a higher salary — cash is king, as they say. While the benefits are apparent, there are still financial factors to consider.

What are the Pros of a Higher Salary?

An established company with more resources and predictable cash flow may offer a higher salary with fewer equity benefits to attract top, specialized talent, simplify payroll, and indicate its expectations for the role. Employees benefit in similar ways:

• Cash Flow Stability: A higher base pay provides income predictability, making planning and budgeting easier.
• Less Risk: Your base salary isn’t subject to market swings. RSUs can lose value, either in the short term as your employer encounters growing pains or broader market volatility, or in the long term if it faces greater headwinds. 
• Goals Alignment: A predictable salary allows you to manage your savings, investing, and spending to achieve your objectives, such as buying a home or retiring when you choose.
• Simplicity: It’s often easier to manage fewer RSUs administratively, helping you avoid confusion, stress, or penalties for non-compliance related to taxes.
• Concentration Management: Fewer RSUs also help reduce portfolio concentration and reliance on your company’s success. 
• Potentially Higher 401(k) Match: If your company offers a 401(k) match, that amount is based on your cash salary, not RSUs. A higher base salary means a greater match amount overall, but this employment benefit isn’t always available at early-stage start-ups.

What are the Cons of a Higher Salary?

If you receive a high salary offer, it’s critical to understand the financial trade-offs it may entail:

• Higher Taxes: A higher salary increases your taxable income, which could push you into a higher tax bracket and increase your overall liability. There are also income phaseouts for certain tax benefits and limits on how much you can contribute to retirement savings.
• Missed Growth: With fewer equity benefits, you may miss out on significant wealth potential had you been granted more RSUs. This can be especially disheartening if the company’s stock increases significantly over your career. 
• Lower Overall Earnings: Similarly, base pay may not keep pace with or be worth as much as equity benefits tied to company growth over time, reducing your overall earnings in the long term.
• Overspending: “Keeping up with the Joneses” may become more tempting when you have immediate cash.

Assessing Biotech Compensation with CCMI

Biotech is a dynamic industry offering innovative opportunities, major wealth gains, and unique compensation perks. Accepting an offer requires considering various factors, such as:

• Cash flow: “Can I afford to wait for vesting?” and “Can I make it on a base salary alone?”
• Market competitiveness: “Does this base pay compare to similar roles in the same area?” and “Does the equity value outpace a pay raise?”
• Long-term goals: “Am I making assumptions about future growth?” and “Am I missing out on growth potential?”

We’ve guided many biotech professionals through reviewing and accepting an offer, integrating equity benefits into their broader plan, and managing income changes over time, including:

• Clarifying grant details
• Evaluating market competitiveness versus value of equity
• Tax-efficient planning, such as appropriate withholdings and gifting
• Avoiding common mistakes related to RSUs and managing income
• Diversification strategies to reduce concentration risk
• How an early separation may impact your benefits

At CCMI, we understand the biotech industry and specialize in equity compensation services to help you make informed decisions at every stage. Contact us and speak with a San Diego-based fee-only advisor today.