What is equity and what are the different types?

Equity is a type of ownership interest in a company. When a company grants equity to their Team Members, it means that the Team Member is given a share in the ownership of the company.

Equity can be granted for a variety of reasons, including as a form of compensation, as a way to align Team Members incentives with company goals, and as a way to retain valuable talents.

These are the three main types of equity that companies award:

  • Stock options: a stock option gives you the right to purchase a certain number of shares of company stock at a predetermined price (known as the strike price) within a certain period of time (known as the exercise period).
  • Restricted stock unit (RSU): represent a promise by the company to give you a certain number of shares of company stock at a future date, usually subject to certain vesting requirements.
  • Equity cash alternatives: a form of equity compensation that allows you to benefit from the appreciation in the value of the company's stock without actually owning the underlying shares. This alternative is mainly used in countries that have tax disadvantages or compliance issues for the traditional equity types.

The specifics of the equity grant will depend on the terms and conditions set by the company in the company equity plan.

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