The WorldatWork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for HR Professionals

Chapter 16. Equity-Based Rewards

Many U.S. employers rely on equity-based rewards to inspire their employees to reach new heights of performance. Based on existing company practices, equity-based rewards account for much of the marked increase in executive pay, and many employees still participate in stock option plans despite the less favorable accounting treatment that is the result of sweeping regulatory changes, which will be covered later in this chapter.

Equity rewards take many forms. Within the total rewards package, some companies consider equity to be a form of compensation and others consider it to be a benefit. For the purpose of this chapter, we will cover equity rewards under both umbrellas.

• Compensation. Some equity rewards are used as long-term employee incentives, which are a form of variable pay. Equity rewards that may be considered compensation include stock options, stock awards/grants, and stock alternatives.

• Benefits. Some types of equity rewards are used for the purpose of providing income protection, assisting employees with wealth building and retirement planning. Examples include employee stock purchase plans (ESPPs), retirement plans such as employee stock ownership plans (ESOPs), and other defined contribution plans. Equity-based rewards programs are more likely to be considered benefits programs when they are tax-qualified and cover a broad employee population.

Business Structures

The types of equity-based rewards used by different organizations are highly ...