FREE 10+ Equity Compensation Agreement Samples in MS Word | Google Docs | Apple Pages | PDF

Many public companies and some private companies, particularly startups, offer equity compensation as a benefit. Due to a lack of cash or a desire to invest cash flow into growth initiatives, equity compensation is a viable option for attracting high-quality employees. Employees at technology companies in both the start-up and mature stages have traditionally been rewarded with equity compensation. There is never a guarantee that your equity stake will pay off with equity compensation. Being paid a salary, as opposed to equity compensation (or in combination with equity compensation), can be advantageous because you know exactly what you’re getting. Your equity compensation can be influenced by a number of factors.

10+ Equity Compensation Agreement Samples

Employees can receive equity compensation in the form of non-cash compensation. Options, restricted stock, and performance shares are examples of equity compensation; all of these investment vehicles represent employee ownership in the company. Employees can share in the company’s profits through appreciation, which can encourage retention, especially if vesting requirements are in place. A below-market salary may be accompanied by equity compensation at times.

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Types of Equity Compensation

1. Stock options – Companies that provide equity compensation to their employees can give them stock options, which give them the right to buy shares of the company’s stock at a predetermined price, also known as the exercise price. This right may vest over time, allowing employees to take control of this option after a certain amount of time working for the company. They gain the right to sell or transfer the option when it vests. Employees are more likely to stay with the company in the long run if they use this method. The option, on the other hand, usually has a time limit.
2. Non-qualified stock options and Incentive stock options – Non-qualified stock options (NSO) and incentive stock options are two other types of equity compensation (ISOs). Only employees have access to ISOs (and not non-employee directors or consultants). These options offer special tax benefits. Employers, for example, are not required to report when they receive non-qualified stock options or when they become exercisable.
3. Restricted stock – The completion of a vesting period is required for restricted stock. After a certain amount of time has passed, vesting can be completed all at once. Vesting can also be done evenly over a set period of time, or in any other combination that the company’s management deems appropriate. RSUs are similar to restricted stock units in that they represent the company’s promise to pay shares based on a vesting schedule. Although this has some benefits for the company, employees do not gain any stock ownership rights, such as voting rights, until the shares are earned and issued.
4. Performance shares – Performance shares are only given out if certain criteria are met. These could include things like an EPS target, a return on equity (ROE), or the total return of a company’s stock in comparison to an index. Performance periods are typically multi-year in duration.

FAQs

If you want to see more samples and formats, check out some equity compensation agreement samples and templates provided in the article for your reference.