Equity Compensation Awards

Posted on December 27, 2025

EQUITY COMPENSATION AWARDS

These are non-cash forms of employee pay, like Stock Options, Restricted Stock Units (RSUs), and Restricted Stock Awards (RSAs), that give employees a stake in the company's ownership, aligning their success with the company's, often used for recruitment and retention, with unique vesting schedules, tax implications and rules for each type.

Common Types of Equity Awards:

• Stock Options: In simple words, it implies give the right, but not the obligation, to buy company stock at a predetermined "strike" price for a set period.
• Incentive Stock Options (ISOs): Special tax treatment for employees
• Non-Qualified Stock Options (NSOs): These are more flexible, taxed as ordinary income upon stock options' exercise.
• Restricted Stock Units (RSUs): A promise to deliver shares on a future date(also called vesting). It is taxed as wages when they vest and is considered the most common type of equity awards.
• Restricted Stock Awards (RSAs): Here actual shares are granted but they are subject to forfeiture if vesting conditions aren't met. Besides, they are taxed at vesting.
• Employee Stock Purchase Plans (ESPPs): This type of equity awards allows the employees to buy company stock, often at a discount, through payroll deductions.
• Stock Appreciation Rights(SARs): Pay out in cash or stock based on the increase in stock value, not actual share, not actual share ownership.

Key Considerations:

• Vesting: The process by which you earn full ownership, often based on time the stocks have been held or sometimes based on performance milestones.
• Taxation: Different awards have different tax events( grant, vesting, exercise, sale) and tax rates (ordinary income vs. capital gains)
• Transferability: Many awards aren't transferable until vested or exercised, impacting charitable giving.
• Valuation: The value depends on the stock price; it grows with the company with the passage of time but can also decrease if the stock falls.