What is equity compensation and how does it work?

What is equity compensation and how does it work?

Equity compensation is a non-cash pay that represents ownership in the company. It often comes in the form of stock options or restricted stock units (RSUs). Employees receive these as part of their compensation package, which can motivate them to contribute to the company's success.

What are the benefits of equity compensation for employees?

The benefits include potential financial gain if the company's stock price increases, alignment of employee interests with company performance, and the opportunity to share in the company's success.

Are there any risks associated with equity compensation?

Yes, there are risks. The value of equity compensation can fluctuate based on market conditions, and if the company underperforms, employees may not see the expected financial benefits.

How are equity compensation taxes handled?

Equity compensation is typically taxed as income when the stock is vested or exercised. The specific tax implications can vary based on the type of equity and local tax laws.

Can you explain the difference between stock options and RSUs?

Sure! Stock options give employees the right to purchase shares at a set price, while RSUs are actual shares granted to employees after certain conditions are met, usually vesting.