Stock Compensation
Candlefocus EditorUnlike non-monetary incentives such as paid holidays and bonuses, stock compensation is also subject to a vesting period before it can be sold. Vesting periods are generally three to four years and begin after the first anniversary of the date an employee became eligible for stock compensation. During this time, employees cannot exercise their options and transfer the underlying stock until the shares have "vested," which incentivizes them to stay loyal to the company.
Most forms of stock compensation involve either non-qualified stock options (NSOs) or incentive stock options (ISOs). With these stock options, the employee is given the right to buy company stock at an agreed-upon price and within a certain window of time. Options are usually valued as the difference between the stock price and the strike price, and the employee makes no up-front payment to receive them. Your employer will withhold taxes based on what you paid for the stock, which is the strike price.
In addition to granting stock options, some companies also award performance shares to managers and executives who achieve certain performance metrics, such as earnings per share (EPS) or return on equity (ROE). Performance shares allow employees to potentially receive additional equity based on the company’s performance for a specified period.
Overall, stock compensation is a powerful incentive for employees to align their goals with those of the company. It also acts as a retention tool, as employees can benefit from the successful performance of the company. Stock compensation is beneficial to both employers and employees, as it rewards and incentivizes employees while helping employers attract, retain, and motivate talent.