What is employee equity compensation? Equity compensation is non-cash pay that is offered to employees that many companies offer. While it might be clear to some, most people don’t fully understand the types and true meaning of their equity compensation. So let’s dive in.
There are a few types of equity compensation that can be given to employees, such as stock options, ESPPs (employee stock purchase plans), and restricted shares. Further more, there are a few different types of stock options that people talk about being, Nonstatutory Stock Options (NSOs) and Incentive Stock Options (ISOs). Restricted stock is stock that is not completely transferable until its rules have been met. Each of these options and stocks have different rules, characteristics, and caveats, so it’s important to inquire about each before making any decisions about them.
Can your equity comp harm you? Can it benefit you? Having equity comp means you are investing in the company which you work for, which hopefully means they are a good investment to take on. However, oftentimes owning too much can dilute your portfolio and bring on too much risk. If this is the case, you may want to speak to a financial professional to see if selling some of your stock or purchasing other types of assets is in the best interest of your portfolio.
It’s important to understand your your situation. The more information you have, the better you will be able to understand your equity compensation.
Equity compensation can oftentimes be tricky and complicated, so it’s very important to discuss your particular situation with a financial professional to ensure you are making the most out of your investments. If you have equity compensation and have questions on what steps should be taken, email us at info@shermanwealth.com or schedule a 30-minute introductory meeting here.
