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EQUITY-BASED COMPENSATION –

THE EMPLOYEE AND
EMPLOYER TAX PERSPECTIVES

UNDERSTANDING THE BASICS

E quity-based compensation offers significant advantages for both employees and Equity-based compensation is a versatile approach to rewarding employees with an
employers. For employees, it presents the opportunity for significant financial
rewards, fosters a sense of ownership and alignment with company goals, and ownership stake in the company. This compensation strategy typically employs a range
enhances overall compensation packages. Employers can leverage equity to attract and of instruments, including incentive stock options, non-qualified stock options, employee
retain top talent, incentivize employees to contribute to long-term company success, and stock purchase plans, restricted stock awards, and restricted stock units. The tax
potentially reduce compensation costs. However, equity-based compensation also presents implications associated with each of these compensation structures can be complex and
a complex landscape of tax implications for employers and employees. vary significantly. One common principle amongst all these compensation structures is that
the value of the equity generally becomes taxable income when certain conditions are met,
such as the exercise of options, the vesting of restrictions, or the sale of shares.

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