The candidate was a staff-level backend engineer, and he asked one question I could not answer: โIf I stay four years and the company does well but never sells, what do I get?โ I gave him a paragraph about alignment and long-term thinking. He took the other offer, and he was right to.
Why UAE equity design is not a copy of the Silicon Valley playbook
Most equity templates circulating in this market are lightly edited American documents, and they carry assumptions that do not hold here.
The largest is tax. A great deal of US and UK scheme design exists to manage when a tax charge lands โ at grant, at exercise, or at sale. The UAE does not levy personal income tax on employment income, which removes most of that machinery. That is genuinely liberating, and it is also a trap: teams inherit the complexity of a foreign scheme without inheriting the reason it was complex.
The second difference is liquidity. A grant in a mature US startup ecosystem comes with an implicit assumption of a secondary market. Here, for most companies, there is no realistic path to selling shares before an exit event. Pretending otherwise is the fastest way to lose the trust of a senior engineer who has been through this before.
The third is mobility. A large share of engineering departures in the UAE are triggered by relocation, visa or family circumstances rather than dissatisfaction. Your leaver provisions will be tested more often than in most markets, and they will be tested on people you wanted to keep.
What I got wrong the first time
I optimised the number and ignored the explanation. We offered what I still think was a genuinely generous grant, expressed as a percentage, in a document our own lawyer described as โstandardโ. Two of the four engineers who received it could not tell me a year later what it would take for the grant to be worth anything, and one of them believed it was a bonus that paid out annually. The grant cost us real dilution and bought us no retention at all, because retention comes from a belief the holder can actually hold. I now treat the one-page explanation as the deliverable and the legal document as the backing paperwork, rather than the reverse.
Step 1 โ Decide what you are buying before you decide how much
Equity is sold internally as one thing and used as three. Write down which one you actually want, because they pull in different directions.
- Retention โ you want the engineer to still be here in three years. This argues for longer vesting, a meaningful cliff and back-weighting.
- A cash discount โ you cannot pay market rate today. This argues for a larger grant, a shorter cliff, and complete honesty about the trade, because the engineer is financing you.
- Ownership behaviour โ you want people who make decisions like owners. This argues for a smaller, broader distribution and far more energy spent on explanation than on size.
Most teams want all three and design for none. If you are using equity to close a cash gap, say so internally and size it accordingly; a grant that is really deferred compensation but is presented as ownership will be resented by the person paying for it.
Step 2 โ Choose the instrument before the number
Three instruments dominate in this market, and they behave differently enough that the choice should precede any discussion of percentages.
Share options give the right to buy shares at a fixed price later. They are the most familiar to internationally experienced engineers and the most demanding administratively, since exercising them means someone actually joins the share register.
Phantom shares track the value of real shares and pay out in cash on a defined trigger, with no cap table entry. They are administratively far lighter, and for companies that expect a trade sale rather than a listing they often describe the real outcome more accurately than options do.
Cash-settled appreciation rights pay the growth in value between grant and trigger. They are the cleanest instrument when the goal is explicitly to reward value creation over a fixed period rather than to create long-term ownership.
None of these is a shortcut around getting the documents right. What the instrument choice determines is which conversation you are having with the candidate โ and an engineer who has held options before will ask which one you are offering within about ninety seconds.
Step 3 โ Confirm which entity will issue it
This is the step that most often gets skipped, and it is the one that can invalidate everything downstream. The mechanics of issuing and transferring shares depend on the type of company involved.
A DIFC or ADGM entity operates under a common-law companies regime that international investors and senior engineers recognise. A mainland LLC operates under different formalities, and those formalities affect how straightforward it is to bring in a new shareholder. Free zone entities vary by zone.
The practical consequence is that a plan designed on the assumption of easy share transfers can be unworkable in the entity that will actually issue it โ which is one of the reasons phantom instruments are common here. Settle this with corporate counsel in the relevant jurisdiction before any number reaches an offer letter. This article is a design method, not legal advice, and the entity question is precisely where the two must part company.
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Get startedStep 4 โ Size the grant with replacement cost, not a percentage
Percentages are how founders think about equity and a terrible way to communicate it. โ0.4% of the companyโ means nothing without a valuation, a dilution forecast and an exit assumption, and candidates who cannot compute those three quietly discount the grant to zero.
Work from the cash gap instead. If the engineer is accepting a package AED 120,000 a year below what they could get elsewhere, they are investing AED 480,000 over four years in your company, in the riskiest possible instrument. Size the grant so a plausible outcome returns a multiple of that investment, and if it cannot, you have learned something important about your offer before the candidate does.
Then show the arithmetic at three scenarios: no exit, a modest trade sale, and a strong outcome. Include the zero. Any engineer who has held equity before will run these numbers regardless; running them yourself converts a sales conversation into a credibility one.
Step 5 โ Design vesting around the risk you actually carry
Four years with a one-year cliff is the default because it is the default, not because anyone re-derived it for this market. Two adjustments are worth considering.
Set the cliff to the point where a hire becomes net productive. On most engineering teams that is somewhere between four and eight months, not twelve. A twelve-month cliff protects you for a period during which you already knew the answer, and it reads to candidates as distrust rather than prudence.
Decide acceleration before an acquirer forces you to. Single-trigger acceleration on change of control makes your company harder to buy; no acceleration at all means your team has an active reason to resist an acquisition. Double-trigger โ acceleration on change of control combined with termination โ is the common compromise, and the time to write it down is now, not during diligence.
Step 6 โ Write the liquidity story down honestly
This is the question I failed to answer two years ago, and it is the one senior engineers care about most: how, specifically, does this turn into money?
Answer it in writing, covering the trigger events that create a payout, whether the company can or will buy shares back and on what basis, whether secondary sales are permitted, and what happens if none of these ever occur. If the honest answer is โan acquisition is the only realistic pathโ, write that down. Engineers do not object to risk; they object to discovering risk that was concealed from them.
Define good leaver and bad leaver explicitly in the same document. State what happens to vested and unvested holdings in each case, and specify the exercise window after departure. A ninety-day exercise window on an illiquid instrument is, in practice, a forfeiture clause โ it may still be the right choice, but it should be described accurately.
Step 7 โ Explain it on one page and test comprehension
Produce a single page containing the instrument, the number of units, what they represent, the vesting schedule, the trigger events, the three scenarios and the leaver provisions. No cross-references, no defined terms in capital letters.
Then do the part almost nobody does: ask the candidate to explain the grant back to you. Not as a test of them, but as a test of your document. Every misunderstanding surfaced in that five-minute conversation is a dispute you will not have in year three.
This is also the cheapest retention work available to you. Equity that the holder cannot describe has no motivational value whatsoever, because motivation requires a mental model of how effort connects to outcome. The engineers who leave over equity are rarely leaving over the size of the grant; they are leaving because they finally understood it and it was not what they thought.
What the whole thing costs
Realistically, a few weeks of elapsed time and one focused conversation with corporate counsel about the issuing entity, plus a day of your own time building the three-scenario page. The template is reusable for every subsequent hire, which is the point: the expensive version of this is doing it improvisationally, per candidate, under offer-stage time pressure.
Equity is not the only lever, and it is frequently not the right one. If the underlying constraint is capacity rather than commitment, the honest answer may be adding engineers rather than deepening the incentives on the ones you have. And if you are staffing a specific build, the compensation question is downstream of scope โ our notes on building a fintech product in the UAE start from the roles the system actually needs. Compensation norms also travel: our Singapore practice sees the same instruments used with a materially different tax overlay, which is exactly why copying a foreign template unexamined tends to end badly.
Frequently asked questions
Does equity work differently in the UAE than in the US or UK?
Yes, in two ways that matter to how you design the offer. The first is tax: the UAE does not levy personal income tax on employment income, which removes most of the tax-timing engineering that shapes option design in the US and UK. Schemes there are often built around when a tax charge lands; in the UAE that constraint largely disappears, so the design can focus on retention and clarity instead. The second is the mechanics of issuance and transfer, which depend heavily on the type of entity involved. A DIFC or ADGM company operates under a common-law companies regime familiar to international investors, while a mainland LLC has different formalities for share transfers. This is squarely a question for corporate counsel in the relevant jurisdiction, and it should be settled before you put a number in an offer letter.
How much equity should a senior developer get?
The percentage is the wrong starting point, because it is meaningless without a valuation and a liquidity path. Start from the cash gap instead: if the engineer is accepting a package that is, say, AED 120,000 a year below what they could earn elsewhere, you are asking them to invest AED 480,000 over four years. The grant should be sized so that a realistic, not heroic, company outcome compensates that investment with a return that reflects the risk taken. Run the arithmetic at three scenarios โ no exit, a modest trade sale, and a strong outcome โ and show all three. Candidates who have been burned before will do this calculation anyway; doing it for them is a credibility signal that costs nothing.
Are phantom shares a reasonable alternative to real equity?
They are, and for many companies in this market they are the more honest instrument. Phantom shares and cash-settled appreciation rights track the value of real shares but pay out in cash on a defined trigger, without the recipient joining the cap table. That avoids the administrative weight of many small shareholders and sidesteps transfer formalities entirely. The trade-off is real and should be stated plainly: the holder has no shareholder rights, and the payout depends on the company having cash at the trigger point. Engineers who have seen equity schemes before will spot this immediately, so present it as a deliberate choice with a clear trigger definition rather than as equivalent to shares.
What happens to unvested equity when an engineer leaves the UAE?
That depends entirely on what your plan documents say, which is precisely why this clause deserves attention before it is ever tested. It matters more here than in most markets because a significant share of engineering departures in the UAE are driven by relocation, visa or family circumstances rather than by dissatisfaction, so the good-leaver scenario is the common case rather than the exception. Define good leaver and bad leaver explicitly, state what happens to vested and unvested holdings in each case, and specify the exercise window after departure. A short exercise window combined with an illiquid instrument is functionally a forfeiture clause, and describing it as anything else will damage trust with the engineers you most want to keep.
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