Equity compensation includes various methods of compensating employees with payments tied to equity value. Because it ties compensation to the value of the company, it can be a great tool for incentivizing employees. The methods may vary by employee, company or both.
If your company is beginning to explore compensation methods outside of standard salaries and bonuses, you need to understand the equity compensation options available and the circumstances in which they are most beneficial.
The most commonly used equity compensation options include:
- Phantom stock
- Stock appreciation rights
- Company stock
- Restricted stock
- Incentive stock options
- Nonqualified stock options
- Stock bonus and employee stock purchase plans
Employers at various stages of a business life cycle may benefit from adding equity compensation plans. Various equity compensation methods can provide great incentives to both the employees receiving them and the employer providing them through increased engagement that can boost company performance. The particular type of equity compensation that will fit a given situation will vary depending on the employer’s goals and the applicable facts and circumstances. Careful consideration should be given to choosing the appropriate type of compensation and complying with any applicable rules so that both parties can appropriately benefit.