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Employee Benefits - Stock Options & Incentive Plans
Equity compensa-tion (e.g., stock options) allows companies to leverage powerful financial incentives to motivate their rank and file, attract new blood and create confluence of abjective among managers and workers, all this without using cash. In this 6 page white paper, you'll get exposed to the key concepts driving decisions about why use options, what kinds of options might be a best fit for your company, and pitfalls/potholes to watch out far. Before venturing into the murky waters fraught with Alternative Minimum Tax concerns and options expensing woes, buoy your company with this strudy anchor! Don't be caught adrift on the sea of the uninformed!! EQUITY COMPENSATION Because developmental stage companies need to conserve cash to fuel their growth, they tend to avoid compensation programs that involve significant cash payments. Equity compensation (e.g., stock options) allows a start-up business to offer employees powerful financial incentives without using cash. In addition, the company may transfer substantial economic benefits to employees, using stock or stock options, with a minimal impact on the company’s earnings. From the employee’s perspective, stock options offer an opportunity to participate in the company’s success (i.e., through appreciation in the value of the underlying option shares) without risk of capital loss. Stock purchase and stock option programs can also be structured to defer an employee’s recognition of income and allow taxation at capital gain rates. Stock option arrangements thus represent key ingredients of the compensation strategies of start-up companies. Stock Options Stock options are the most common type of equity compensation. Stock options are contracts that allow the holder (the “optionee”) to purchase a certain amount of stock at a specified price within a set time period. Even if the market value of the stock rises, the optionee may purchase the stock at the lower price set by the option contract. There are essentially two types of compensatory stock options — qualified and nonqualified. Qualified stock options include incentive stock options which are tax-favored options created under Internal Revenue Code (“IRC”) §422. Nonqualified stock options are stock options other than qualified options. Incentive stock options (ISOs) are stock options that meet the requirements of IRC §422. An ISO allows an employee to purchase stock at a discount without paying tax until the stock is sold, at which time any gain will be taxed at favorable long-term capital gain rates (assuming the stock is held for at least 12 months). [continued...] Want to know more? Download the White Paper "Employee Benefits - Stock Options & Incentive Plans" for just $39.95. |
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