An award which can be granted on a stand-alone basis or may be granted in connection with equity awards such as restricted stock units or, less frequently, stock options or stock appreciation rights.

A dividend equivalent right entitles the recipient to receive credits equal to the cash or stock dividends or other distributions that would have been received on shares of stock had the shares been issued and outstanding on the dividend record date.

The dividend equivalents may be paid at the same time dividends are paid on actual shares to shareholders or may be paid upon vesting, exercise, settlement, or payment of an underlying award. To the extent that the right to receive dividend equivalents or the termination of the right to receive dividend equivalents is tied to the exercise of a stock option, this causes a stock option that is not otherwise subject to Section 409A of the Internal Revenue Code to become subject to Section 409A.

For more information on the application of Section 409A to equity awards, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview: Share Equity Plans. For more information on common equity pitfalls under Section 409A, see Equity Pitfalls Under Section 409A Checklist.