Equity compensation is a form of non-cash payment where employees, executives, or advisors receive ownership stakes in a company instead of (or in addition to) traditional salaries. This compensation can come in the form of stock options, restricted stock units (RSUs), or performance-based shares. Startups and high-growth companies often use equity compensation to attract talent, align incentives, and preserve cash flow.
What are the common types of equity compensation?
Equity compensation can include: -Stock Options (ISOs/NSOs): Right to buy shares at a fixed price. -Restricted Stock Units (RSUs): Shares granted with a vesting schedule. -Phantom Stock: Cash payouts tied to stock value, without actual shares. -Employee Stock Purchase Plans (ESPPs): Discounted stock purchase programs for employees.
Why do startups offer equity compensation?
Startups use equity compensation to attract and retain top talent, especially when they lack the cash for high salaries. It also aligns employees' interests with company growth.
How is equity compensation taxed?
Taxation depends on the type of equity: -Stock options: Taxed when exercised or sold. -RSUs: Taxed as income when vested. -Phantom stock: Taxed as ordinary income upon payout.
Or want to know more about pre-seed funding?