Stock Compensation

AAA

DEFINITION of 'Stock Compensation'

A way corporations use stock options to reward employees. Stock compensation can be very profitable for the employee if the stock prices increases. New companies tend to be riskier than long standing corporations which have a record of proven performance, so they often use stock options to attract long-term employees.

INVESTOPEDIA EXPLAINS 'Stock Compensation'

This is a common method used by corporations to compensate executives. The theory is that executives will work harder since they want their own stock to rise in value and, therefore, have the best interests of shareholders in mind.
Employees with stock options need to know whether their stock is vested. This means the stock will retain its full value even if they are no longer employed with that company. Tax consequences depend on the fair market value of the stock. If the stock is subject to tax withholding, the tax must be paid in cash even if the employee was compensated in the form of stock. Also referred to as equity compensation.

RELATED TERMS
  1. Shareholder

    Any person, company or other institution that owns at least one ...
  2. Accounting-Based Incentive

    A method for compensating corporate executives based on whether ...
  3. Evergreen Option

    A type of employee stock option plan in which additional shares ...
  4. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  5. Stakeholder

    A party that has an interest in an enterprise or project. The ...
  6. Corporate Governance

    The system of rules, practices and processes by which a company ...
RELATED FAQS
  1. Why did Larry Page pay himself a salary of only $1 a year at Google?

    Co-founder and current chief executive officer (CEO) of Google Larry Page has been paid an annual salary of only $1 every ... Read Full Answer >>
  2. What is an evergreen provision and how does it affect shareholders?

    It is common for publicly-traded corporations to provide more than just regular salary compensation to their management and ... Read Full Answer >>
  3. What is dilutive stock?

    Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that ... Read Full Answer >>
  4. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  5. Is there a way to include intangible assets in book-to-market ratio calculations?

    The book-to-market ratio is used in fundamental analysis to identify whether a company's securities are overvalued or undervalued. ... Read Full Answer >>
  6. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
Related Articles
  1. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  2. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  3. Options & Futures

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  4. Options & Futures

    How To Tell If A Company's In Trouble

    Observing a company's behavior can prove beneficial for the mindful investor. Know the signs before you make a reactionary move.
  5. Investing Basics

    What are the Pink Sheets?

    Pink Sheets is a listing of over-the-counter stocks that are not listed on any established exchange such as the New York Stock Exchange or the NASDAQ.
  6. Investing Basics

    Explaining Idiosyncratic Risk

    Idiosyncratic risk is the risk inherent in a particular investment due to the unique characteristics of that investment.
  7. Professionals

    How the Advisor Compensation Debate Helps Clients

    The debate over compensating advisors is not likely to be resolved anytime soon, but clients should win with lower fees and better services.
  8. Investing

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  9. Stock Analysis

    3 Stocks To Buy and Hold For the Rest of 2015

    One of the dominant themes to consider for 2015 is the normalization of monetary policy as the Fed raises interest rates.
  10. Personal Finance

    The Economics Of Private Jets

    High-flying CEOs use private jets to avoid check-in hassles and departure delays. For them, concierge service and arriving on time are worth the price.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!