Equity compensation refers to a non-cash payment that represents ownership in a company, often provided to employees, executives, or directors as part of their compensation package. This type of compensation can take various forms, including stock options, restricted stock units (RSUs), or performance shares. The primary goal of equity compensation is to align the interests of employees with the company’s success by giving them a stake in the company’s growth and profitability.
For example, a senior executive might receive stock options as part of their compensation package, allowing them to purchase company stock at a predetermined price after a certain period. If the company performs well and the stock price increases, the executive can exercise their options to buy stock at a lower price and potentially sell it at a profit.
Example of Use:
A company might offer equity compensation to its key employees to retain top talent and incentivize long-term commitment. For instance, a tech startup may grant its engineers restricted stock units that vest over four years, encouraging them to stay with the company and contribute to its growth.
Related Terms:
Long-Term Incentive Plan (LTIP)
