Equity compensation is any element of an employee's pay package that is delivered in the form of company shares — or a right to acquire shares — rather than cash. It is the foundation of employee share plans and is used by companies around the world to attract, retain, and motivate employees.
Definition
Equity compensation is a form of non-cash employee remuneration in which the employee receives shares (or rights over shares) in the company as part of their total reward package.
Equity compensation takes several forms: direct share allotments (employee receives shares immediately, subject to vesting); Employee Stock Purchase Plans or ESPPs (employee buys shares through payroll deductions); stock options (employee receives the right to buy shares at a fixed price); phantom shares (cash payment tracking share value); and Restricted Stock Units or RSUs (conditional entitlement to shares on a future date).
Cash salaries are a fixed cost. Equity compensation links reward to company performance — employees who receive shares benefit directly when the share price rises. This creates alignment between employee incentives and shareholder interests. It also conserves cash (useful for growing companies) and creates a powerful retention mechanism through vesting.
The taxable benefit from equity compensation generally arises at the point when shares are received or options are exercised. The market value at that date is treated as a benefit in kind subject to PAYE. Dividends are subject to WHT at 10%. Gains on disposal of NGX-listed shares are currently exempt from Capital Gains Tax. Consult a qualified Nigerian tax adviser for your specific situation.
Both have a role in a total reward strategy. Cash bonuses are simpler and provide immediate value. Equity compensation creates long-term alignment — employees only benefit fully if the company's share price holds or grows. For retention, equity (with vesting) is generally more effective because the employee must remain employed to receive the full benefit.
Yes. Many Nigerian listed companies combine both — a cash bonus for short-term performance and an equity allotment for long-term retention and alignment. The mix depends on the company's strategy, the employee's seniority, and available share allotment authority.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
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