Equity compensation is often a significant portion of the total compensation paid to employees and other service providers. An equity incentive plan can be used to:

When designing their equity plans, public companies must consider the views of shareholder advisory groups and others who review compensation plans with a critical eye. For example, certain plan features that were once common are now considered problematic pay practices that could result in a shareholder vote against a plan. Designing a public company equity incentive plan has therefore become more challenging.

Prior to the enactment of the Tax Cuts and Jobs Act (TCJA) in 2017, most public companies included certain features in their plans to comply with the exception to Internal Revenue Code Section 162(m)'s $1 million annual deduction limit for compensation paid to covered employees. The TCJA repealed this exception so it is no longer available for new plans.

For resources on private company equity incentive plans, see Equity Incentive Plan (Private Company) Toolkit.

For resources on partnership equity compensation, see Partnership Equity Compensation Toolkit.

For resources on director equity compensation, see Director Compensation Toolkit.