The compensation mantra for many companies today is ―pay for performance.‖ As a result, companies often focus on equity-based compensation in order to align the interests of executives with those of the company’s shareholders. The most popular forms of equity-based compensation are stock options and restricted stock. It is not uncommon for these vehicles to compose a substantial portion of an executive’s net worth. Accordingly, it is important that executives fully understand the income tax treatment of options and restricted stock in order to maximize the after-tax value. This article presents the basic tax rules that apply to stock.
