DPS Jaipur

Equity Award Agreements

Equity Award Agreements

Equity Award Agreements: What You Need to Know

Equity award agreements are becoming increasingly popular among companies as an effective way to incentivize employees and motivate them to meet certain performance goals. These agreements enable companies to grant employees equity in the company, usually in the form of stock options or restricted stock units (RSUs).

In this article, we’ll take a closer look at equity award agreements and what you need to know about them.

What is an Equity Award Agreement?

An equity award agreement is a contract between an employer and an employee that grants the employee the right to receive equity in the company. These agreements are often offered as a part of an employee’s compensation package, and are designed to motivate employees to perform at a high level and contribute to the growth of the company.

Equity award agreements come in various forms, but the most common types are stock options and RSUs. Stock options give the employee the option to purchase company stock at a predetermined price, while RSUs grant the employee a certain number of shares of company stock once certain performance goals are met.

Why Offer Equity Awards?

Equity awards are an effective way for companies to incentivize employees to work harder and contribute more to the company’s success. When employees have a vested interest in the company’s performance, they are more likely to take initiative, work harder, and make strategic decisions that benefit the company.

Equity awards can also be used as a retention tool, helping companies keep their top performers on board for longer periods of time. By offering equity in the company, companies can help employees feel more invested in the company’s success and create a sense of loyalty.

Key Components of an Equity Award Agreement

Equity award agreements can have many different components, but typically include the following:

– Grant: The grant is the initial award of equity to the employee. This can come in the form of stock options or RSUs.

– Vesting: Vesting is the process by which the employee gains ownership over the equity grant. Vesting periods can vary, but are typically tied to specific performance goals or time periods.

– Exercise: Exercise is the process by which the employee exercises their option to buy stock at a predetermined price. This is typically only available for stock option grants.

– Termination: The termination clause outlines what happens to the equity award if the employee leaves the company.

– Taxation: Equity awards can be subject to various tax implications, and it’s important to fully understand the tax implications of an equity award before signing the agreement.


Equity award agreements are a powerful tool for companies looking to motivate and incentivize employees. By offering equity in the company, companies can create a sense of ownership and loyalty among employees, and help them become more invested in the company’s success.

If you’re considering an equity award agreement, it’s important to understand the key components of the agreement, including grant, vesting, exercise, termination, and taxation. By doing so, you’ll be better equipped to evaluate equity award agreements and make informed decisions about your compensation package.