Equity is a form of non-cash payment to employees that gives them a stake in company ownership, whether through stock options or shares.
Offering employees equity plans can give a strong incentive to boost performance. It can also increase the chance that an employee stays on board longer in order not to lose access to this form of compensation.
Equity plans are especially popular with publicly traded companies and startups but can also be valuable for private companies experiencing a period of growth.
Equity compensation tends to become more complex for global workforces, largely due to differences in tax regulations.
How equity works depends on the type of equity. As a general rule, the more the company’s value increases the more the employee’s equity compensation value increases.
Different types of equity
Different types of equity give employees different rights regarding their share in the company. Typical equity offers tend to include the following:
- Common stock: Common stock represents ownership in the company. Common stockholders get voting rights and are entitled to a portion of the company’s profits through dividends.
- Preferred stock: Preferred stockholders get some privileges over common stockholders. For example, they get priority when it comes to dividends and distributions.
- Restricted stock: Restricted stock comes with restrictions or vesting requirements that need to be fulfilled before any shares can be traded or transferred.
- Stock options: Employees get the right to buy or own shares at a discounted price. Stock options can have different vesting schedules or expiration dates depending on the agreement.
Managing global equity
Designing and managing equity plans for a global workforce can be time consuming. It can also leave the organization prone to tax errors and tangled in fees and penalties if not done correctly.
Partnering with a global payment distribution platform with expertise in local tax laws and an in-depth understanding of building global equity plans is crucial for creating relevant and valuable compensation plans for every employee, regardless of location.