what is equity compensation 
equity compensation is non cash pay that is offered to employees equity compensation may include options restricted stock and performance shares all of these investment vehicles represent ownership in the firm for a company s employees 1equity compensation allows the employees of the firm to share in the profits via appreciation and can encourage retention particularly if there are vesting requirements at times equity compensation may accompany a below market salary understanding equity compensationequity compensation is a benefit provided by many public companies and some private companies especially startup companies recently launched firms may lack the cash or want to invest cash flow into growth initiatives making equity compensation an option to attract high quality employees traditionally technology companies in both the start up phase and more mature companies have used equity compensation to reward employees with equity compensation there is never a guarantee that your equity stake will actually pay off as opposed to equity or in combination with equity compensation being paid a salary can be beneficial if you know exactly what you re getting there are many variables that can impact your equity compensation types of equity compensationcompanies that offer equity compensation can give employees stock options that offer the right to purchase shares of the companies stocks at a predetermined price also referred to as exercise price this right may vest with time allowing employees to gain control of this option after working for the company for a certain period of time when the option vests they gain the right to sell or transfer the option 2 this method encourages employees to stick with the company for the long term however the option typically has an expiration employees who have this option are not considered stockholders and do not share the same rights as shareholders there are different tax consequences to options that are vested versus those that are not so employees must look into what tax rules apply to their specific situations 3additional types of equity compensation include non qualified stock options nso and incentive stock options isos isos are only available to employees and not non employee directors or consultants these options provide special tax advantages for example with non qualified stock options employers do not have to report when they receive this option or when it becomes exercisable restricted stock requires the completion of a vesting period vesting may be done all at once after a certain period of time alternatively vesting may be done equally over a set period of years or any other combination that the management of a company finds suitable restricted stock units rsus are similar but they represent the company s promise to pay shares based on a vesting schedule this offers some advantages to the company but employees do not gain any rights of stock ownership such as voting until the shares are earned and issued performance shares are awarded only if certain specified measures are met these could include metrics such as an earnings per share eps target return on equity roe or the total return of the company s stock in relation to an index typically performance periods are over a multi year time horizon 