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What are the kinds of worker equity?
What are the kinds of worker equity?

There are many types of worker equity. We cover two of them below.

Stock Options

This type of equity gave workers the option to buy stock often at a discounted price called the “strike price.” Stock options, however, can be a bit risky for workers. When the stock options vest, the worker might have to pay out thousands of dollars in personal funds to be able to exercise the option and pay off taxes. Otherwise, the stock option could expire if it is not exercised within a set time frame. Moreover, if the market value of the stock goes below the strike price, the worker will essentially lose money.

Restricted stock units

More recently, we have seen a shift in big tech companies towards restricted stock units (RSUs) which is essentially a promise of future equity—whether they be in the form of stocks, partnership interests, membership units, or tokens. Basically, it's a contract for future equity. Unlike stock options, the worker doesn’t have to shell out any personal funds to get the stock.

In addition, with RSUs, the equity is not immediately transferred to the worker. Hence, tax consequences may be delayed until a landmark event takes place such as the successful sale of the company or an IPO. The liquidity from the landmark event will allow the RSUs converted to stocks to be sold off to pay off any tax liability. RSUs have been considered by some experts to be the better choice because of this.

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