INSIGHTS AND RESOURCES

How well do you understand your equity compensation options?

Learn how different equity compensation plans meet different needs

INSIGHT ARTICLE  | 

Authored by RSM US LLP


Updated July 2021 (originally drafted February 1, 2017)


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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.

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This article was written by Anne Bushman and originally appeared on 2021-08-02.
2021 RSM US LLP. All rights reserved.
https://rsmus.com/what-we-do/services/tax/federal-tax/how-well-do-you-understand-your-equity-compensation-options.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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