Stock grants are a form of compensation in which an employer gives employees corporate stock in the company as part of an equity plan.
They say rising tide lifts all boats, but when your company stock is skyrocketing it isn't going to put money in everyone's pocket-unless they have stock.
Employers award stock grants to employees so that talent will see a direct benefit to increasing the company stock price. This translates to a shared desire to work hard and grow the business.
Stock grants also incentivize employees to keep working for a company to see through the vesting period or the length before the stocks become transferable.
Stock grants vs. stock options
Employers award stock grants to employees and provide them with the value of the corporate stock.
Stock options allow an employee to purchase shares of the company's common stock at a fixed price. An employer provides the employee the opportunity to purchase various options of stock chosen by the company within a predetermined timeframe and price.
Unlike stock grants, an employee receiving stock options still has to pay for the stocks if they want them. They can also leave the company before the end of the vesting period and retain their shares.
What is an example of a stock grant?
Typically, a stock grant comes with a vesting period, and the employee only receives the stocks if they stay with the company through that time. An employee forfeits the stocks if they leave before their stocks vest.
For example, a company grants a new employee 100 shares of stock as part of their compensation package. The shares have a vesting period of five years, so the employee only acquires the stock if they work five consecutive years at the company.
What are the benefits of stock grants?
Both employers and employees gain many benefits from stock grants. These advantages include the following:
Talent retention
Companies offering stock grants can attract and retain top talent seeking additional global compensation and employee benefits. Employers show their commitment to building long-term relationships with their employees and employees offered stock grants are more motivated to stay with a company because they are invested in its ongoing success.
Improved work ethic
The value of the stock grant depends on the performance of the company. Employees benefit from company stock price increases and are more invested in the company's success. Employees receiving stock grants are more willing to put effort into their work to produce a better product or service.
Intrinsic value
Stock grants are a more reliable form of employee compensation than stock options. Stock grants are equitable property and have some intrinsic value, even if the stock market is volatile.
Because the employee does not have to purchase the stocks outright, stock grants always have some value. Stock options, however, become less valuable if the stock market is volatile because the current market price of the stock may be lower than the set price.
Upfront cash savings
Stock options do not require a cash outlay upfront, and employers can defer some employee compensation. Because of the vesting period, the employer makes a future promise to reward their employees for the company's success.
Additionally, employees do not have to make any initial financial agreement. Employees who accept stock grants only agree to have the ability to purchase stock shares in the future.
Do stock grants count as income?
Stock grants are considered income once vested. A portion of the shares are withheld to pay income taxes, and the employee receives the remaining shares.
How are stock grants taxed?
Stocks are taxable income, and employees must pay all applicable taxes on this source of income, including federal, state, and any local taxes.
The taxes are equal to the market value per share when the stocks vest. In the United States, employers may claim a corporate tax deduction by reporting the value of their stock grants.
Can stock grants be offered to international employees?
Stock grants are another tool to attract and incentivize quality talent worldwide. Companies can gain a competitive advantage in the international hiring market by offering stock grants as part of a global equity program.
However, employment and tax laws vary significantly from country to country, and employers understand how to compliantly offer grant stock options to their foreign employees.
Employers seeking to offer stock grants to international employees should research the various tax obligations mandated in their target market and gain a firm grasp of how offering equity to talent can impact worker classification.
Pebl is your one-stop benefits partner
You need the best talent, so you need to offer them competitive compensation-that means more than just high wages. It means supplementary benefits, such PTO, sick leave, and stock grants and options. And don't forget that talent across the globe has very different expectations when it comes to compensation.
Why not let Pebl help?
If you're looking to offer stock grants, our Global Equity professionals have you covered. Need more?
Our Global Benefits services can craft competitive, country-specific compensation packages that will have talent banging down your door to get hired. We also can handle the administration for you.
And if you'd like to have one centralized system for benefits, payroll, and everything else? Our Global Work Platform™ offers it all-hiring, payroll, employer of record services, benefits, equity and more in 185+ countries worldwide.
Contact us when you're ready to make things easy.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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