Glossary / Equity Compensation
Equity compensation refers to a form of compensation that is given to employees in the form of company stock or other equity-based instruments. It is a way for companies to incentivize and reward employees for their contributions to the company's success. There are several types of equity compensation, including stock options, restricted stock units (RSUs), and employee stock purchase plans (ESPPs). Each type has its own rules and regulations regarding vesting periods, exercise prices, and tax implications. Stock options give employees the right to purchase company stock at a predetermined price, known as the exercise price, within a specified period of time. RSUs, on the other hand, grant employees the right to receive company stock at a future date, typically after a vesting period. ESPPs allow employees to purchase company stock at a discounted price. Equity compensation can be a valuable tool for attracting and retaining talented employees, as it aligns their interests with those of the company's shareholders. It also provides employees with the opportunity to benefit from the company's growth and success. However, equity compensation can also be complex and subject to various risks. The value of the stock can fluctuate, and employees may face tax implications when exercising their options or receiving stock. It is important for employees to understand the terms and conditions of their equity compensation and seek professional advice if needed. Overall, equity compensation is a way for companies to reward and motivate employees by giving them a stake in the company's success. It can be a valuable component of an employee's total compensation package and can help drive long-term performance and loyalty.