Stock-Based Compensation
Originally published on June 9, 2015
Updated on February 4th, 2024
Traditionally, cash compensation is the primary method companies use to reward employees or contractors for their hard work. When cash is at a minimum or companies wish to incentivize their personnel, stock-based compensation is a viable alternative. This provides a unique opportunity for the company to save cash and ensure that everyone in the company is working towards a common goal: higher profits or valuation.
Yet it is important to consider the follow items before issuing any stock-based compensation:
- Federal and state laws and requirements
- Accounting issues, such as compensation expense and equity dilution
- Tax treatment and deductibility – related to the company and the recipient
If these are not addressed and accounted for appropriately, it may damage the relationship between the company’s personnel and investors (current and future). We recommend that each company consult with their attorney and accountant prior to finalizing any agreement to avoid any potential pitfalls.
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