Equity Compensation: How It Works, How It’s Taxed, and What to Watch For

Equity compensation is a form of pay that gives you ownership, or the right to ownership, in a company. It commonly comes in the form of stock options or restricted stock and almost always includes vesting schedules and tax consequences that can show up well before a sale.

Understanding how equity compensation works, when taxes are triggered, and where common risks arise can help you avoid unpleasant surprises and make more informed decisions as your equity vests, is exercised, or is sold.