Stock equity boosts employee longevity. Granting it should be easier, faster, smarter — with legal savvy.

Getting the best talent through the door is only half the battle. Keeping morale and motivation high so they stay is the other half. Competitive salaries are a main driving force in retaining brilliant talent, but it shouldn’t stop there.

Equity options level up an employer brand, making it clear a company wants to invest in its talent for the long haul. But launching an equity scheme (especially globally) is confusing when employers are new to this space — it's a maze of legal and tax requirements.

Skin in the game

Equity compensation goes the extra mile, and draws a workforce into a company’s potential for success in a big way. Employees are more invested in driving rapid growth and innovation once stock options are available. Put simply, they’ve got real skin (wealth potential) in the game now.

Talented employees may have been drawn in by a company's mission, but if they don't feel like part of the organization in a tangible way, they're less likely to stay.  Equity stock aligns employee and employer interests, boosting employee motivation towards the long term success of the business.

Competitive compensation isn’t static 

Instead, it’s constantly evolving. Especially as we move through 2025, an emphasis on comprehensive total rewards is only deepening. Those navigating the job market are increasingly drawn to holistic compensation packages

It’s not just about base pay, but tax-free incentives too. It’s not just about wellness initiatives, but also real career development. It’s not just about flexible work options, but workload as well. It’s not just about bonuses, but stock equity on top.

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Jumping through legal hoops

Equity compensation is one of the biggest draws for people looking to join startups and companies that are scaling fast. Beyond the monetary, it’s about being part of something bigger, with the potential to build wealth while helping shape the future of a company. 

The benefits of having an equity scheme in place speak for themselves, loudly and clearly. But once employers are ready to jump in on this, it’s the logistical, technical and legal aspects that become complicated and overwhelming.

Plus, as workforces become increasingly global, hires could be based in a number of different locations. This is where things start to get really complicated. Cross-border taxation rules, securities and employment law differences, and additional reporting requirements can make granting equity a logistical headache.

Companies typically have to bring in lawyers, navigate a maze of regulations, and shell out thousands for the necessary stock plan amendments and grant documents. It can spiral into weeks of work to get it over the finish line.

There’s more than one way to grant stock

Making sense of stock options can be confusing for both employers and employees at first — from the tax implications, to vesting schedules and post-termination exercise periods (PTEP). To make a start on demystifying the different types of stock options that could be available, jump into these brief explainers:

Incentive stock options (ISOs)

ISOs are great for tax purposes, as they’re not subject to income tax in the U.S. But when exercised, they could trigger the alternative minimum tax (AMT) for current and former employees. If their fair market value is higher than the strike price, the difference in these values (known as “the spread”) will be seen as a taxable gain.

Depending on how significant the difference between the two values is, exercising ISOs can still result in a large tax bill (though, the opposite could also happen, if the difference in value is less significant, or negligible).

• Who is eligible for ISOs? Just those officially classified as employees (including employees who were given ISOs and have since left a company). Board members, consultants or freelancers aren’t included. Typically, employees hired via Employers of Record (EoRs) aren’t eligible either, whereas direct employees of a local subsidiary are.

• How do they qualify? By meeting the holding period requirement (to get in on the potential tax benefits).

Non-qualified stock options (NSOs)

Typically less tax effective than ISOs, NSOs are taxed like normal income once exercised. The spread amount is immediately considered taxable income. Though there’s less to gain in tax savings, NSOs are considered a more flexible stock equity option, as they aren’t governed by rigid regulations in the same way ISOs are. 

This means NSOs can be granted to a wider range of company stakeholders. 

• Who is eligible for NSOs? Employees — including those hired via EoRs — as well as directors, consultants, investors, and board members. Freelancers and other types of workers or stakeholders can be eligible too, as long as they provide services to the company at the time of grant. 

• What are the tax implications? When exercised, NSOs are taxed normally as income, and subject to ‘tax withholding’ — where, for employees, tax is deducted from employee wages and paid directly to the government.

Stock appreciation rights (SARs)

An alternative to both ISOs and NSOs, SARs are a form of employee incentive, rather than a stock option. They give employees access to the value gain of a company’s stock over a specific period of time.

This can be especially attractive during times when a company’s stock is forecasted to rise. When this happens, employees get a payment in line with the company’s stock value appreciation.

• Who do SARs benefit? In countries where traditional stock options programs are onerously inconvenient, or the tax regime simply doesn't incentivize them, SARs provide a simpler route to equity compensation — without the need to handle actual shares initially. Companies facing regulatory complexities may find SARs an appealing alternative.

Converting stocks instead of granting them

During events like mergers or acquisitions, it’s often necessary to transition existing stock options into equivalent options in the acquiring or newly formed company. This step is essential for alignment between employee incentives and the goals of the combined organization, especially when retaining top talent is a priority.

• How do companies get this process right? Getting this process right requires a clear understanding of the terms of the stock option agreement and how the conversion will impact things like vesting schedules, strike prices, and potential tax liabilities. Employees should be made aware of their rights, such as accelerated vesting provisions or cash-out options, which may come into play during the transaction.

• What monetary impact can mergers or acquisitions have on stock equity? These conversions can have significant financial implications, as they may trigger tax events or change the valuation of stock options. Planning ahead and consulting with financial or legal advisors is key to minimizing surprises and keeping transitions smooth.

• What are the benefits of a successful stock conversion? For companies, communicating the details of the conversion process transparently helps build trust and helps employees to feel secure about their equity during the transition.

In the end, a well-handled stock option conversion protects employees' interests while also strengthening their commitment to the success of a newly aligned organization.

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What about tax when exercising or selling? 

Stock options are exciting, but the tax side of things can feel like a foggy maze, so let’s break it down. Whether you’re exercising options, selling shares, or planning around capital gains, there are must-knows to be clear on to avoid any costly surprises.

Taxation when option holders exercise

• In the U.S. 

Here’s the deal: when stock options are exercised, a taxable event is triggered. For NSOs, ordinary income tax is paid on the difference between the exercise price and the fair market value of the stock. 

For ISOs , it’s trickier — there’s no regular income tax at this stage, but employees might have to deal with something called alternative minimum tax (AMT). Even if they don’t sell the shares, AMT might still apply.

• Outside of the US 

When employees are tax residents of another country, taxation needs to be determined on a case-by-case basis. 

It is often the case that stock options are taxed at the time of exercise. However, some countries (most of which can be found in Europe) have introduced tax rules that defer the timing of taxation to the time at which the employee gets an actual benefit from the equity, i.e. most often, the time when they sell the shares underlying the stock options. 

When taxation takes place at the time of exercise, the spread is often taxed as professional income. Sometimes additional social security contributions apply, even if most of the time the gain will be above the cap on social security contributions foreseen by local laws. 

Some countries, like Canada or Spain, do not allow deferred taxation, but exempt a part of the gain made at exercise, which can decrease the taxable basis substantially.  

Taxation when stockholders sell

• In the U.S. 

Selling shares creates another taxable moment, and the tax rate depends on how long they’ve been held. 

• Outside of the U.S. 

At the time of sale, the gain made by the stockholder upon selling their shares will usually be taxed as capital gains.  

The gain is often determined by reference to the increase in value of the shares between the time at which the option holder exercised the stock options and the time of sale of the underlying shares. There are exceptions, but this is the usual pattern found in most countries. 

In some countries, there are also ways to reduce the taxable portion on the basis of different parameters, such as the holding duration of the shares, or the employment duration. All of this needs to be assessed case-by-case.

• A smart global equity partner 

From location to location, tax implications can get especially complicated. With Remote Equity, global workforce and equity specialists team-up on the intricate details. We drive through the constantly shifting goalposts, jurisdiction to jurisdiction, on behalf of employers. 

Encyclopedic knowledge, experience, and a finger on the pulse of taxation changes equals smooth sailing on equity for global teams.

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Finding the sweet spot with capital gains tax planning

Here’s where some strategy can save real money. The difference between long-term and short-term capital gains tax rates can have a huge impact on final earnings here. To hit long-term status, the following applies:

• Hold ISO shares for at least two years from the grant date and one year from the exercise date.

• Hold NSO shares for at least one year after exercising.

Miss the window? Gains could get slapped with short-term rates, which are the same as ordinary income taxes. Planning the timeline is key here.

The same goes for any country where the holding duration has an influence on the tax treatment of the gain made at the time of sale of the shares. 

How does alternative minimum tax (AMT) work?

AMT is like a backup tax system, designed to make sure people with large deductions still pay their fair share. For ISO holders, this can be stressful. The difference between the exercise price and the stock’s fair market value is considered for AMT purposes — even if the stock isn’t sold. 

This means taxes could be owed on "paper gains" (unrealized profit that exists in theory on stock that hasn’t been sold) — which might feel frustrating if cash flow doesn’t match up. 

The takeaway on stock option taxes

Stock options can be a fantastic wealth-building tool, but they come with strings attached — namely taxes. By understanding how taxes work at every stage, from exercising to selling, gains can be maximized and nasty surprises avoided. Do the homework, plan strategically, and don’t hold back from asking for expert help. The effort can pay off in a big way.

Getting ahead with stock option taxation looks like:

• Know the vesting schedule so it’s clear when they can be exercised.

• Understand the tax rules around exercise of the options and sale of the shares, so you can decide, depending on your vesting schedule, when is the best time for you to exercise and sell. 

• Understand whether you’ve been allowed the possibility to “early exercise” your stock options (which means exercising options that haven’t vested yet, for more details about early exercise and how it could be advantageous to your employees, consult this article)

• Plan for estimated taxes — no one likes a surprise bill from the IRS or any other local tax authorities.

• Keep excellent records of everything: grant dates, exercise dates, sale prices, etc. These are everything when tax season rolls around.

• Think holistically about financial strategy, including cash flow and potential AMT hits.

• Consult a pro. A good tax advisor can help you save money and stress.

The benefits of stock equity schemes far outweigh the alternative

Despite the difficult legal and tax requirements, equity remains a powerhouse tool for both startups and established companies. A 2024 report by J.P. Morgan focused on trends in equity compensation found that 80% of businesses offer equity plans to their executives, highlighting how these programs have effectively become the norm. 

This means that just to keep up, you should at least have an equity scheme in place. But equity compensation plans that stand out come down to how valuable and competitive your stock options are.

So, while navigating global equity can be complex (and potentially expensive), the payoff is palpable. Offering equity attracts and helps to keep great talent, yes — but it also nurtures a working culture where everyone is invested in the journey.

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Easier, faster, smarter equity — without the regulatory headache

As for all the extra effort of working through legal and administrative red tape, to get a stellar equity scheme off the ground — skip that part with Remote Equity. Leave it to us, in partnership with Carta, leaders across hiring, workforce management and stock options.

When employees feel like owners, they show up with purpose.