While many businesses focus on providing competitive cash-based compensation, it's not the only way to care for employees. Equity compensation is a unique alternative offered by startups, private entities, public companies, and everything in between.

Keep reading if you want to learn how to design a compensation plan with non-cash pay.

What is Equity Compensation?

To put it simply, this type of compensation is a form of non-cash pay. It's a type of investment that gives employees some ownership of the company and could share the profits via future appreciation.

What are the Benefits of Offering Equity Compensation?

There are several benefits to equity compensation.

One is that it helps to offset the drawbacks of below-market pay. You'll see this frequently in new startups that aren't generating a ton of revenue just yet. They still need employees, and equity compensation is a great way to be competitive without having the funds to provide sizable salaries.

This type of compensation can also help improve employee retention. When you provide a piece of the company, you're giving your team an investment they can actively improve. Their work affects whether that investment pays off or not. It's a great way to motivate them while encouraging them to stick around long enough to reap the rewards.

Types of Equity Compensation

You have a few different options if you want to learn how to design a compensation plan that includes equity.

The most common equity compensation is company stock. Some businesses offer stock with each paycheck. Others provide purchasing options, allowing employees to buy shares at predetermined prices. Either way, the compensation gives the employee some ownership and incentive to stay. Visit this website to know more about how to design a compensation plan.

Restricted stock is similar, but the compensation occurs based on a vesting schedule. Also, employees don't gain any rights with stock ownership.

Another option is performance shares. Usually, you'll reward compensation when the company meets specific performance parameters. In most cases, the performance period is over several years.

Is Equity Compensation Right for Your Company?

There's a lot of merits to offering equity compensation. It's certainly worth considering. A wide range of organizations can benefit. Whether you're a new startup or you want to encourage long-term employee retention, there's a lot to gain from these non-cash payments.

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