Dispelling 6 Equity Compensation Myths

Equity compensation plans, often an integral part of an employee benefit package, carry their fair share of misconceptions. We want to show you how these plans work by breaking down six myths.

While equity compensation is often part of a total compensation program commonly used by large publicly traded companies, many smaller companies have embraced it too. Smaller companies use it as way to attract, reward and retain the same talent as larger companies. With a variety of forms, equity compensation can be designed to help meet the goals of companies large, small and every size between.

Unlike what you might think, equity compensation is generally more flexible than typical qualified retirement plans like a 401(k) or profit-sharing plan. That’s partly because these plans generally aren’t subject to ERISA or IRS nondiscrimination rules, which gives employers the freedom to choose who participates. Depending on the type of program, equity compensation can be available to all employees, key talent and management, select employees and board members or contractors.

As part of an overall compensation package, equity compensation can make total compensation more competitive and attractive. Employers can position it not as an alternative, but an addition to salary and other qualified or non-qualified retirement plans. Equity compensation can be designed to payout before, at or after retirement, making it an attractive incentive.

Like many employee benefits, tracking equity compensation can be laborious if it’s done manually in-house. But an employer doesn’t need to do it alone. We can do the heavy lifting and streamline record keeping and reporting needs.

There are two main types of equity compensation used in the workplace today:

• Long term incentive plans (e.g., restricted stock, stock options, stock appreciation rights)
• Employee Stock Purchase Plans. An employer can choose the type of plan(s) and features suited to its needs.

Learn more about the types of equity compensation plans.

Equity compensation is part of an overall compensation package. It is not just for management or c-suite employees. It does not give the recipient access to company financial information or other information not already available to the recipient.