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What do equity-based incentives usually include?
• Employee Stock Options (ESOs)
ESOs refer to a type of equity compensation granted by companies to their employees and executives.
Rather than granting shares of stock directly, the company gives derivative options on the stock instead.
These options come in the form of regular call options and give the employee the right to buy the company’s
stock at a specified price for a finite period of time. Unless a stock option is transferable at the time of grant
and has a price on the public market, an employee is taxed when exercising an option.
• Stock Appreciation Rights (SARs)
SARs are a type of employee compensation linked to the company’s stock price during a predetermined
period. SARs are profitable for employees when the company’s stock price rises, which makes them similar to
employee stock options (ESOs). However, employees do not have to pay the exercise price with SARs. Instead,
they receive the cash payment based on the appreciation of the stock. When an employee exercises the stock
appreciation right, the company will pay the employee in cash equal to the difference between the grant price
and market price of the stock. Employees are taxed when they receive payment with respect to a SAR.
• Restricted stock units (RSUs)
RSUs are issued to employees through a vesting plan and distribution schedule after they achieve required
performance milestones or upon remaining with their employer for a particular length of time. An employee
is taxed when the restrictions on shares of restricted stock lapse or are relieved, which generally is the time
when those shares are fully vested to the individual.
At present, companies may still need to submit the hard copy of the reporting form and materials to the tax
authority in charge. However, it will be possible to submit these reporting forms via the Natural Person Tax
Information Management System (ITS) in the future.
5 AMCHAM SOUTH CHINA
What do equity-based incentives usually include?
• Employee Stock Options (ESOs)
ESOs refer to a type of equity compensation granted by companies to their employees and executives.
Rather than granting shares of stock directly, the company gives derivative options on the stock instead.
These options come in the form of regular call options and give the employee the right to buy the company’s
stock at a specified price for a finite period of time. Unless a stock option is transferable at the time of grant
and has a price on the public market, an employee is taxed when exercising an option.
• Stock Appreciation Rights (SARs)
SARs are a type of employee compensation linked to the company’s stock price during a predetermined
period. SARs are profitable for employees when the company’s stock price rises, which makes them similar to
employee stock options (ESOs). However, employees do not have to pay the exercise price with SARs. Instead,
they receive the cash payment based on the appreciation of the stock. When an employee exercises the stock
appreciation right, the company will pay the employee in cash equal to the difference between the grant price
and market price of the stock. Employees are taxed when they receive payment with respect to a SAR.
• Restricted stock units (RSUs)
RSUs are issued to employees through a vesting plan and distribution schedule after they achieve required
performance milestones or upon remaining with their employer for a particular length of time. An employee
is taxed when the restrictions on shares of restricted stock lapse or are relieved, which generally is the time
when those shares are fully vested to the individual.
At present, companies may still need to submit the hard copy of the reporting form and materials to the tax
authority in charge. However, it will be possible to submit these reporting forms via the Natural Person Tax
Information Management System (ITS) in the future.
5 AMCHAM SOUTH CHINA
