So I'm not sure why the strike price is used to define the value, since I would need to pay that amount anyway. I would make a profit for any dollar for which the stock is valued after the strike. Or am I getting it wrong?
So to add for others: > stock option strike price is usually equal to the FMV of the company’s stock on the day the option is granted. ergo, if the strike price when the options are granted is $1, they are worth $1, and your cost to exercise is to purchase them at $1.
Ergo, as stefanDM points out, they have no additional value to your salary on day 1. They only have value if 1) They increase in value AND 2) They become tradeable on either a public or private exchange / are purchased by another company.
I found this article to be useful: https://carta.com/blog/equity-101-stock-economics/#:~:text=F....
Don't share that "math" with the employer during your negotiation.
So take the current strike price * # of shares offered * .01 = how much they are actually worth.
So, if they are offering you 100,000 shares 100,000 * .01 = 1,000 1,000 * $1 = $1,000
The shares are worth $1,000 dollars. So you can accept $89,000, or they can bolster the share amounts, or they can change the shares to prefered.
EDIT: I realized now you said ESOP - so these are actually tradable shares on the stock market. They are worth face value of the stock price right now then, and it's up to you to decide if you will get wealthier or poorer based on this investment.
If you want to be pedantic, this is a good article with the things you need to consider with regards to how you can collect these funds and the tax considerations: https://cleartax.in/s/taxation-on-esop-rsu-stock-options