Option Pool Communication Scripts: Board & Employee Memos
last updated: Feb 19, 2026
Founders often treat equity like play money until they run out of it or fail to explain its value to a key hire. You need precise language to extract shares from your board and translate those shares into perceived value for employees. Below are the exact scripts to manage both sides of the table.
TL;DR
Most founders fumble option pool communication by being too vague with the board or too complex with employees. The goal is to justify dilution with a specific hiring plan for investors and simplify the wealth mechanism for talent.
How to read this: Use the glossary to understand the terms, then copy the email templates below to execute.
- Benchmark: Seed stage option pools typically sit in the 10–15% range of the fully diluted capitalization, according to 2025 Carta data.
- Rule: Never promise a specific future monetary value to an employee; always use "hypothetical scenarios" to avoid lawsuits.
- Warning: If you grant a fixed percentage (e.g., "0.5%") instead of a specific number of shares, you create a legal nightmare during the next funding round.
How to read this: Use the glossary to understand the terms, then copy the email templates below to execute.
Glossary
- ESOP (Employee Stock Option Plan): The legal container that holds the shares you are giving away. Often confused with Employee Stock Ownership Plans (retirement accounts), but in startups, this refers to your option pool.
- Fully Diluted Basis: The total number of shares assuming all options, warrants, and convertible notes are converted to common stock.
- Strike Price: The price an employee must pay to buy the stock. This is usually set to the 409A valuation (fair market value) at the time of the grant to ensure tax compliance.
- Vesting Schedule: The timeline on which employees earn their shares, typically a 4-year period with a 1-year cliff (meaning they get nothing if they leave before month 12).
Equity Communication Templates
Use these templates to formalize your equity requests and offers. Adjust the bracketed text to match your company data.
1. Board Request: Increasing the Pool
Boards hate dilution. They will only approve a pool increase if they see a direct link between the new shares and revenue-generating hires. Do not ask for "buffer." Ask for specific headcount inventory.
Subject: Approval Needed: ESOP Expansion for Q3/Q4 Hiring Plan
Hi [Board Member Name],
To execute the operating plan approved in the last board meeting, we need to finalize the compensation packages for the following key roles:
1. Head of Engineering (Target grant: 0.75% - 1.0%)
2. Senior Account Executive (Target grant: 0.25% - 0.4%)
3. Growth Marketer (Target grant: 0.15% - 0.25%)
Currently, our unallocated option pool sits at [Current %], which is insufficient to close these candidates competitively.
I am requesting approval to increase the option pool by [X] shares (approx [Y]% fully diluted). This brings the total available pool to [Z]%, which aligns with standard benchmarks for our stage.
Attached is the updated pro-forma cap table showing the dilution impact.
Please let me know if you have questions or if we can proceed with a circular resolution for signature.
Best,
[Founder Name]
2. Employee Explainer: Shares vs. Percentages
Candidates often ask, "What percentage is this?" This is a trap. If you confirm a percentage in writing, and then raise money (increasing the denominator), they may claim you owe them "anti-dilution" protection. Use this snippet in your offer email to pivot to share count and potential value.
Subject: Understanding Your Equity Offer at [Company Name]
Hi [Candidate Name],
I want to clarify the equity component of your offer, as this is often the most complex part of startup compensation.
We are offering you [Number] Stock Options.
Candidates often ask about "percentage ownership." While these options represent approximately [0.XX]% of the company today, we focus on the number of shares because percentages naturally decrease as we raise more capital to grow the company (dilution).
However, even though the percentage piece of the pie gets smaller, our goal is to make the whole pie significantly larger.
Here is how to think about the potential value (Sample Math):
Current Share Price (Strike Price): $[0.XX]
Total Options: [10,000]
Scenario A (2x Growth): If our share price doubles to $[X], your spread is roughly $[Total Value].
Scenario B (10x Growth): If we hit our Series B targets and share price hits $[Y], your spread is roughly $[Total Value].
*Note: These scenarios are hypothetical for illustration purposes only and do not guarantee future performance or specific valuations.*
We want you to think like an owner. Let's build this to the Scenario B outcome together.
Best,
[Founder Name]
1. Board Request: Increasing the Pool
Boards hate dilution. They will only approve a pool increase if they see a direct link between the new shares and revenue-generating hires. Do not ask for "buffer." Ask for specific headcount inventory.
Subject: Approval Needed: ESOP Expansion for Q3/Q4 Hiring Plan
Hi [Board Member Name],
To execute the operating plan approved in the last board meeting, we need to finalize the compensation packages for the following key roles:
1. Head of Engineering (Target grant: 0.75% - 1.0%)
2. Senior Account Executive (Target grant: 0.25% - 0.4%)
3. Growth Marketer (Target grant: 0.15% - 0.25%)
Currently, our unallocated option pool sits at [Current %], which is insufficient to close these candidates competitively.
I am requesting approval to increase the option pool by [X] shares (approx [Y]% fully diluted). This brings the total available pool to [Z]%, which aligns with standard benchmarks for our stage.
Attached is the updated pro-forma cap table showing the dilution impact.
Please let me know if you have questions or if we can proceed with a circular resolution for signature.
Best,
[Founder Name]
2. Employee Explainer: Shares vs. Percentages
Candidates often ask, "What percentage is this?" This is a trap. If you confirm a percentage in writing, and then raise money (increasing the denominator), they may claim you owe them "anti-dilution" protection. Use this snippet in your offer email to pivot to share count and potential value.
Subject: Understanding Your Equity Offer at [Company Name]
Hi [Candidate Name],
I want to clarify the equity component of your offer, as this is often the most complex part of startup compensation.
We are offering you [Number] Stock Options.
Candidates often ask about "percentage ownership." While these options represent approximately [0.XX]% of the company today, we focus on the number of shares because percentages naturally decrease as we raise more capital to grow the company (dilution).
However, even though the percentage piece of the pie gets smaller, our goal is to make the whole pie significantly larger.
Here is how to think about the potential value (Sample Math):
Current Share Price (Strike Price): $[0.XX]
Total Options: [10,000]
Scenario A (2x Growth): If our share price doubles to $[X], your spread is roughly $[Total Value].
Scenario B (10x Growth): If we hit our Series B targets and share price hits $[Y], your spread is roughly $[Total Value].
*Note: These scenarios are hypothetical for illustration purposes only and do not guarantee future performance or specific valuations.*
We want you to think like an owner. Let's build this to the Scenario B outcome together.
Best,
[Founder Name]
Benchmarks
Context is everything. If you are offering a lead engineer 0.05%, you are insulting them. If you are offering them 5.0%, you are breaking your cap table.
Sample Math for Founders:
If you have 10,000,000 shares outstanding and grant 10,000 options:
- Seed Stage Pool Size: Investors expect an unallocated pool of 10–15% post-money. If you are at 5%, you will likely need to top it up before your next round. Check our guide on seed stage examples for more detail.
- Executive Hires (Post-Series A): VP-level hires often command 1.0–2.0%.
- Senior Individual Contributors: Typically land in the 0.1–0.5% range depending on technical difficulty and leverage.
Sample Math for Founders:
If you have 10,000,000 shares outstanding and grant 10,000 options:
- Ownership: 10,000 / 10,000,000 = 0.1%.
- Exit Value: If the company sells for $50M, that 0.1% is roughly $50,000 (gross).
- Cost: Always verify this using an option pool calculator to ensure you don't over-grant.
Shares vs Percentages
The single biggest point of confusion is the difference between owning a fixed percentage and owning options. Understanding equity dilution is critical for both you and your hires.
The Trap:
If you promise a candidate "1% of the company," you are technically promising them anti-dilution rights. When you raise your Series A and issue new shares to investors, that employee's 1% would require you to issue more shares to them to keep them at 1%. This is non-standard and will kill your deal.
The Fix:
Always grant a specific number of options (e.g., 25,000 options). You can verbally explain what percentage that represents today, but your offer letter must state the share count. This aligns expectations: as the company issues more shares to grow, everyone is diluted proportionally, but the value of each share should ideally increase.
The Trap:
If you promise a candidate "1% of the company," you are technically promising them anti-dilution rights. When you raise your Series A and issue new shares to investors, that employee's 1% would require you to issue more shares to them to keep them at 1%. This is non-standard and will kill your deal.
The Fix:
Always grant a specific number of options (e.g., 25,000 options). You can verbally explain what percentage that represents today, but your offer letter must state the share count. This aligns expectations: as the company issues more shares to grow, everyone is diluted proportionally, but the value of each share should ideally increase.
Risks
- The 83(b) Election: If founders or early employees receive Restricted Stock (shares subject to vesting) or exercise their options early, they must file an 83(b) election with the IRS within 30 days. Missing this deadline can result in massive tax bills when shares vest. Note: Standard stock options usually don't require this until you exercise them.
- Phantom Equity: Avoid informal promises like "I'll give you 5% later." Without board approval and a 409A valuation, these promises are legally binding liabilities that can block an acquisition or funding round.
- Expired Options: Standard options often expire 90 days after an employee leaves. Ensure your team understands this "use it or lose it" mechanic to avoid bad blood during offboarding.
Will a perfect option pool actually get you to $10k MRR?
Mastering option pool communication is a necessary step to secure talent, but it is not the whole picture. You can have the most tax-efficient, perfectly communicated ESOP in the world, but if your other variables — specifically your Offer and Market Timing — are weak, your probability of hitting $10k MRR remains near zero.
Employees do not stay for equity alone; they stay for momentum. If you use these scripts to hire a team but fail to give them a product that sells, the equity becomes worthless paper. Use these templates to clear the administrative hurdle, then get back to selling.
Employees do not stay for equity alone; they stay for momentum. If you use these scripts to hire a team but fail to give them a product that sells, the equity becomes worthless paper. Use these templates to clear the administrative hurdle, then get back to selling.
FAQ
- You:How often should I request an option pool increase?Guide:Try to size your pool to last 12–18 months of hiring. Going back to the board every quarter looks like poor planning. Ideally, you refresh the pool during a funding round or annually.
- You:Should I tell employees the total number of outstanding shares?Guide:You are not legally required to disclose the full cap table to standard employees, and most founders don't. However, transparency builds trust. If you don't share the denominator (total shares), the numerator (their share count) is mathematically meaningless. Providing a "fully diluted share count" is a safe middle ground.
- You:What happens to the pool if we don't use it?Guide:Unallocated shares eventually just sit on the cap table. In an exit, they usually disappear (benefiting all shareholders), or they can be canceled to reduce dilution. However, investors often push for a larger pool pre-investment to ensure they don't get diluted by your future hiring.
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