Understanding equity compensation devices
Equity compensation can be a powerful tool for attracting and retaining top talent, but choosing the right plan—especially as part of a broader executive compensation package—requires careful consideration of tax implications, business goals and employee needs. This article explores common equity compensation options—including stock options, restricted stock and performance shares—and offers guidance for employers navigating plan design and compliance.
If your company is exploring compensation methods outside of standard salaries and bonuses, understanding the equity compensation options available and the circumstances in which they are most beneficial is crucial to structuring compensation packages effectively.
The most commonly used equity compensation options include:
- Phantom stock
- Stock appreciation rights
- Company stock
- Restricted stock (including RSUs and PSUs)
- Incentive stock options
- Nonqualified stock options
Employers at various stages of a business lifecycle may benefit from adding equity compensation plans. Various equity compensation methods can provide effective incentives to both the employees receiving them and the employer providing them through increased engagement that can boost company performance.
The type of equity compensation that fits a given situation will vary depending on the employer’s goals and the applicable facts and circumstances. Leaders should carefully consider the appropriate type of compensation and corresponding compliance processes so that both employer and employee can benefit accordingly.