A compensation plan refers to a complete package that outlines the details of employee’s
wages, benefits, salaries, and terms of payment. During a formal employment period, employees
receive incentives and monetary compensations in form of wages and salaries. Retirement or
pension as commonly referred to in the United States means benefits to employees by their
employers paid on retirement or termination of employment. In other words, it is money that
employees receive as part of compensation or reward for their work and commitment to an
organization after retirement. However, the level of compensation and amount paid as retirement
depend with each individual, the type of work done, and special achievements among other. This
paper aims to discuss the advantages and disadvantages of various types of tax compensations,
including equity-based compensations, deferred compensation plans, retirement compensations.
This paper will also highlight their importance of existence. Tax Compensation and Retirement
Equity-based compensation
Equity-based compensation is a non-cash method of payment used by corporations to pay
employees with ownership stake. Equity compensation provides an opportunity for employees to
share in a corporation’s profit (Bova and Yang, p 343). It is also a common compensation
method in public and some private companies, especially the startups. Equity-based compensation may be in form of stock options, restricted stock, share appreciation right plans, deferred share unit plans, and performance shares (Bova and Yang, p 343). Tax Compensation and Retirement
Stock options is a form of equity compensation that gives the holder the right to sell their
stock in future at an agreed price (Call, Kedia, & Rajgopal, p 278). An open stock option
provides the employee with the right to purchase specific amounts of shares at a pre-determined
time in future at a pre-determined time. Restricted stock means a type of stock offered by a
company but is partially transferable until certain conditions have been met (Call, Kedia, &
Rajgopal, p 278). In other words, after certain conditions are met, this kind of stock becomes
transferable. Share appreciation right (SAR) are forms of equity-based compensation that
companies offer to their employees when the company performs well financially. Tax Compensation and Retirement