What is an equity grant
An equity grant is a digital asset grant as non-cash compensation given to someone, giving them a percentage of ownership to a Community Investment Program (CIP). This may come in various forms, such as stock options, restricted stocks, or stock appreciation rights.
What is an equity grant agreement
When a company gives an employee an equity grant, one of the first documents he or she will receive is an equity grant agreement. For newly hired employees, equity grant agreement is usually attached to a job offer letter.
An equity grant agreement is a legal document that breaks down the details of the equity such as the type of equity on offer, how many the person will be offered, the total value of the equity, any vesting periods or performance milestones attached to the offer, the fair market value of each equity unit, and other important legal information.
How does an equity grant work for employees
Typically, employees must first fulfill some requirements to earn these benefits, such as adhering to a vesting period or reaching performance milestones.
A vesting period means that before you acquire these ownership rights, you must work for the company for a predetermined period.
Performance milestones are another set of hurdles that can appear in an equity grant. These metrics and indicators can be attached to an investment, company or an individual’s performance, and are tied to a set number of equity units which an equity grant agreement recipient must reach before having the right to acquire it.
What are the types of equity grant
There are various types of equity grant. Some of the most common types include:
Employee Stock Options
Companies that have employee stock ownership plans offer employees an opportunity to buy shares of the company’s stock at a predetermined price (also known as the exercise price). But first, they must serve the company for a specific period of time. They acquire the right to transfer or sell the option after it has vested.
We have many resources about employee stock option plans here at Cake. If you want to deep dive into the topic of employee stock options, start with our comprehensive ESOP guide.
There are two types of employee stock options: ISO and NSO.
Incentive Stock Options (ISO)
Also known as qualified or statutory stock options, ISO refers to a benefit given to corporate employees where they can buy shares at a discount with the potential gain of tax benefits. An incentive stock option (“ISO”) is an option to acquire stock in exchange for the payment of an exercise price. Unlike an NSO, this type of option can only be granted to employees.
Non-qualified Stock Options (NSO)
A non-qualified stock option (“NSO”) is an option to acquire stock in exchange for the payment of an exercise price. This type of option can be granted to employees and non-employees (such as consultants, members of the board of directors, etc.). NSOs are the most common type of options that we see companies use on Cake.
Restricted Stock Units (RSU)
Unlike stock options, restricted stock units allows employees to own stock outright as soon as conditions are met, instead of having to buy them. RSUs are typically granted to employees after they achieve required targets or performance milestones, or when they reached a specific tenure.
Phantom or Virtual Stock Options
Although phantom stock or virtual stock options aren’t a form of equity, this type of compensation essentially mirrors the underlying value of the company’s stocks, but any gains are paid in the form of cash (as opposed to the right to acquire shares in the company).
What is the most commonly used form of equity grant compensation?
Stock options are the most popular form of equity compensation. This involves a contract where the holder is given the right to buy or sell shares of a specific stock at a predetermined price after a particular period.
How do you get paid for equity grant?
Different companies have various equity grant payouts. This is in the form of equity granted, which is available right away, and vested equity, which has certain conditions that must be met. Granted Equity is available at the beginning of a contract. However, payments for vested equity are spread out over a set number of installments as specified in a contract. The employee basically accepts the risk of a delayed payout for the possibility of a large sum of compensation if the company proves itself successful.
