Equity compensation
Also called equity awards, stock-based compensation.
Pay delivered as stock, options, or similar awards. On CompensationBase, equity is stock awards plus option awards, and it drives the mix bar’s Stock segment and unusual-grant-year flag.
What it is
Equity compensation is pay delivered in or referenced to the company’s stock: RSUs, restricted stock, PSUs, options, SARs, and similar awards. On CompensationBase, “equity” in mix bars and unusual-grant-year tests is Stock Awards plus Option Awards from the SCT—the grant-date fair value of that year’s grants.
It is not the executive’s total stake, not Form 4 activity, and not the value of shares that vested from older grants. Carried interest in All Other Compensation is economically equity-like at some firms but is not counted in that equity sum.
Why companies use it
Boards use equity to conserve cash, retain people through vesting, and put executive wealth on the same ticker as public shareholders.
Plan share reserves approved by shareholders cap how much equity can be granted. Burn rate and overhang are the usual constraints.
Pros
- Alignment with stock price, at least for full-value awards.
- Vesting is a retention tool.
- Grant-date SCT disclosure makes annual grant volume visible.
Cons
- Dilution and the opportunity cost of shares.
- Grant-date totals overstate or understate later value.
- Time-based equity can look “at risk” in a pie chart while paying for tenure.
Examples
Mix-bar equity
Stock awards $15 million + option awards $3 million = $18 million equity. If SCT Total is $22 million, equity is about 82%—the kind of year that can also trip the unusual-grant-year test if it jumped from last year.
What is excluded
A $30 million carry distribution in All Other Compensation does not enter the equity percentage. The mix chart will show Other, not Equity.
On CompensationBase
Equity on mix bars and in unusual-grant-year tests is stock awards plus option awards. That combined share is what can flag a grant-heavy year.
Related terms
- Stock awards
The grant-date fair value of stock-based awards (typically RSUs, restricted stock, and PSUs) reported in the SCT Stock Awards column.
- Option awards
The grant-date fair value of stock options and stock appreciation rights reported in the SCT Option Awards column.
- Compensation mix
The split of reported pay among salary, equity (stock and option awards), cash incentives, and other compensation, calculated from SCT amounts.
- Unusual grant year
A CompensationBase flag when equity is at least 80% of reported total and at least three times the prior year’s total (with a $1M prior-year floor). It marks a likely multi-year or one-time grant, not an annual run-rate.