What Is Equity Compensation?
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.
Equity Compensation. 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.
Forms of equity compensation
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).
Why companies use equity compensation
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.
Tax treatment of equity compensation in Nigeria
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 withholding tax, deducted at source — verify the current rate with a qualified tax adviser. From 1 January 2026, the Nigeria Tax Act 2025 taxes an individual's chargeable gains at personal income tax rates (progressive bands). Gains on disposing of shares are exempt where total disposal proceeds are below ₦150 million and chargeable gains do not exceed ₦10 million in any 12 consecutive months; the amount of share-disposal proceeds reinvested in shares of Nigerian companies is also exempt. Consult a qualified Nigerian tax adviser for your specific situation.
Questions
About equity compensation
This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, legal advice, or tax advice. The value of investments can fall as well as rise. Seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
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