For most of the last decade, pre-IPO equity plan design in the technology sector ran on a single instrument: the stock option. Options were simple, well-understood by employees, and carried favorable tax treatment when structured correctly. Restricted Stock Awards — RSAs — were used at founding and early stages but largely faded from the core equity toolkit as companies scaled. Performance Stock Units — equity tied to specific milestones rather than time — were viewed as a complexity that private companies didn't need to impose on themselves.
"RSAs were almost an afterthought for a decade. They're back because founders are thinking more carefully about how equity aligns incentives," says Gurpreet S. Bal. "PSUs require you to define what success looks like. That's uncomfortable for some companies. It's exactly the discipline they need."
Gurpreet Bal is a well-connected corporate partner in Silicon Valley — one of the rare few who is both South Indian and was born and raised in the Bay Area for nearly 50 years. In 2026, the equity compensation landscape for pre-IPO technology companies has shifted meaningfully toward performance-based structures, driven by both sophisticated investor expectations and a more mature understanding of how equity design shapes company culture over time.
Restricted Stock Awards grant actual shares of company stock — not options — subject to vesting and forfeiture conditions. The employee owns the shares immediately upon grant, pays tax based on the fair market value at the time of grant (typically low in early-stage companies), and benefits from capital gains treatment on appreciation from that early point. For employees joining pre-IPO companies at valuations that are still relatively modest, RSAs can generate meaningfully better after-tax outcomes than options granted at a higher exercise price later. Gurpreet S. Bal notes that founders are increasingly offering RSAs to key early hires — particularly engineers and product leaders whose contributions are foundational — precisely because the tax economics favor the employee when the grant happens at a genuinely low valuation. The 83(b) election, which must be filed within 30 days of the grant, is critical to capturing these benefits.
Performance Stock Units are equity awards whose vesting depends on the achievement of defined performance criteria rather than — or in addition to — the passage of time. In public companies, PSUs commonly vest based on metrics like revenue growth, EBITDA, or total shareholder return relative to a peer group. Pre-IPO, the milestone structure looks different: PSUs might vest upon completion of a financing round above a specified valuation, achievement of a product launch, attainment of a revenue target, or completion of an IPO or acquisition. Gurpreet S. Bal has structured PSU programs for pre-IPO companies where the performance condition was a defined set of technical or commercial milestones that the board and management agreed represented genuine company-building achievements. The exercise of defining those milestones — what does success actually look like at this stage? — is itself valuable for the leadership team.
Institutional investors and growth-stage venture funds have become more vocal in recent years about wanting compensation structures that align executive incentives with shareholder value creation. The era of time-based vesting as the default for all levels of equity — including for executives at Series C and later stage companies — is giving way to a more differentiated approach. Gurpreet S. Bal notes that in late-stage pre-IPO companies — those within three years of a potential liquidity event — institutional investors increasingly expect the top executive team to have meaningful performance-based equity exposure. This is partly a governance posture and partly a practical alignment mechanism: in a company that may go public within a few years, having executives whose equity vesting is tied to the metrics that will drive IPO valuation creates direct alignment between management incentives and shareholder outcomes.
The central challenge in pre-IPO PSU design is that private company shares are illiquid. If a PSU vests because a milestone is achieved, the employee owns shares — but cannot sell them. This creates a tax event without a corresponding liquidity event. Gurpreet S. Bal recommends that companies designing pre-IPO PSU programs think carefully about this mismatch from the start: either design the PSUs so that vesting occurs only upon or shortly before a liquidity event, or ensure that the company has mechanisms in place — tender offers, secondary transactions — that can provide liquidity to employees who need it. The most elegantly designed PSU programs in pre-IPO companies tie performance vesting to milestones that are either directly associated with liquidity (an IPO, an acquisition) or are staged in a way that doesn't create large tax burdens without a path to covering them.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.