Equity Compensation Concepts

The video discusses equity compensation, its types, and benefits for both employers and employees. It covers stock options, ISOs, ESPPs, and RSUs, explaining their tax implications and potential risks. The video also provides guidance on making informed decisions regarding equity compensation.

What is the main reason the lemonade stand owner offers equity to the young employee?

• To increase her hourly wage

• To motivate her to work harder

• To avoid paying taxes

• To compete with Starbucks

What is a key benefit of equity compensation for employers?

• It simplifies tax calculations

• It increases cash flow

• It reduces employee productivity

• It helps retain employees

Which type of stock option is typically available to all employees, including contractors?

• Employee Stock Options

• Non-Qualified Stock Options

• Incentive Stock Options

• Restricted Stock Units

What is a potential tax advantage of incentive stock options (ISOs)?

• They are always tax-free

• They are taxed as ordinary income

• They can be taxed at a lower capital gains rate

• They are exempt from all taxes

What is a common feature of an Employee Stock Purchase Plan (ESPP)?

• It is only available to top executives

• It allows purchasing stock at a discount

• It requires no payroll deductions

• It offers stocks at a premium price

What happens to unvested RSUs if an employee leaves the company?

• They are transferred to another employee

• They are immediately vested

• They are converted to cash

• They are forfeited

Why is it important to consider diversification when managing equity compensation?

• To increase reliance on a single company

• To ensure all investments are in one sector

• To maximize tax liabilities

• To reduce financial risk

What should employees be cautious of when considering equity compensation?

• The kindness of the company's offer

• The potential for future payouts

• The immediate cash value

• The company's stock price history

What is a key consideration when deciding to sell equity compensation?

• The company's CEO

• The company's market share

• The timing of the sale

• The number of shares available

What is the main message regarding time and money in the context of equity compensation?

• Time and money are equally important

• Money is more important than time

• Time is a renewable resource

• Money is a renewable resource