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What is a stock grant? Definition & how it works
Stock grant
By compensating with stocks, the employer aims to motivate employees to stay at the company and keep them invested in its ongoing success, strengthening the pay-to-performance link, which research shows jumped almost tenfold for CEOs from 1980 to the late 1990s due to the proliferation of stock options.
How do stock grants work?
Stock grants work by giving employees actual company shares as compensation, either alongside or instead of cash payments. Here's the basic process: companies issue shares directly to workers, creating immediate ownership once conditions are met. This practice is especially common with startups looking to attract talent without large cash outlays and is part of a broader trend where, by 2001, equity-based pay constituted about two-thirds of the median annual total pay for U.S. top executives.
Looking to reward your global team? Offer salary, equity, and benefits confidently with Oyster.
Most stock grants include these key restrictions:
- Vesting periods: Typically 1-2 years before you fully own the shares, though some agreements use Cliff vesting, where 100% of shares vest at once after a longer period, such as five years.
- Stay requirements: Leave early, lose unvested stock
- Service timing: Only granted for work already completed
Are stock grants worth it?
So, are stock grants actually worth it? The answer depends on two key factors:
- Company performance: If the business grows, your shares grow in value
- Personal alignment: You become invested in the company's success
For employers, it's a win-win—motivate your team without draining cash reserves.
Stock grant vs. stock option
What's the difference between stock grants and options? Here's the key distinction:
- Stock grants: Free shares given directly to you
- Stock options: The right to buy shares at a set price
With grants, you own the stock once it vests—which is why an executive might value it at 80% to 90% of its cash value. With options, you still need to pay to actually get the shares, leading to a lower perceived value.
The idea behind both practices is to motivate your employees to work harder for your company. Employees who receive stock grants or options may be willing to put more effort into their work since they stand to gain from company stock price increases. For the employer, providing stock grants or options to employees offers the additional benefit of not requiring a cash outlay upfront.
How are stock grants taxed?
Here's what you need to know about stock grant taxes: Yes, they count as income, but timing matters. You don't pay taxes when you receive the grant—you pay when the shares vest.
Once vested, report the current market value as taxable income for that year.
Issuing stock grants also has tax ramifications for the employer. Companies that issue stock grants to employees may be able to claim a corporate tax deduction. To claim the deduction, U.S. employers must report the value of the stock grants on IRS Form W-2 or Form 1099. On the employee side, after exercising an incentive stock option, you should receive from your employer a Form 3921.
Creating a stock grant agreement
Every stock grant needs a formal agreement, and in some cases, the SEC requires public companies to file any equity compensation plan with them. This agreement covers:
- Grant details: Number of shares and vesting schedule
- Special terms: Non-compete clauses or performance requirements
- Conditions: What happens if employment ends
The employee receiving the stock agreement should read it carefully and decide whether to accept the stock grant. They should sign and return the stock grant agreement if they accept the terms.
Offering stock grants to foreign employees
You can also include your foreign employees when compensating your team with stock grants. Generally, U.S. companies can issue stock grants to foreign workers. But first, be sure to check local laws and regulations for any restrictions. Keep in mind that tax laws vary significantly from place to place. What's advantageous for your tax bill in one location may not be beneficial in another.
Simplify global equity compensation with Oyster
Stock grants are a powerful way to reward your team and build a culture of ownership, no matter where your employees live. But managing equity across different countries introduces layers of tax and legal complexity. Oyster's global employment platform helps you navigate these challenges, making it easier to offer competitive, compliant rewards to your entire team.
When you're ready to build a truly global team, you can Start hiring globally with a partner who understands the nuances of international compensation.
FAQ’s
What’s the difference between a stock grant and an RSU?
People use the terms interchangeably, but they’re not the same thing. A stock grant typically refers to an award of actual shares, often subject to restrictions that fall away over time, while a restricted stock unit (RSU) is a promise to deliver shares (or cash equivalent) later, once vesting conditions are met. Practically, RSUs tend to be simpler for employees to understand because there’s no “purchase” step, but they can create surprises around withholding and payroll handling at vesting—especially for global team members where local payroll rules may require sell-to-cover or employer-managed tax remittance.
Can you offer stock grants to employees outside the U.S. without creating a local entity?
Often, yes, but “can” and “should” are two different questions. The hard part isn’t issuing the equity from your cap table—it’s staying compliant with local tax, reporting, exchange control, and labor-law expectations in the employee’s country, plus aligning the equity plan paperwork with local employment terms. If you’re employing someone through an Employer of Record (EOR), you also need to confirm how equity is communicated, what data the EOR needs for payroll withholding at vesting (if required), and whether any local filings are triggered by the equity event.
What are the biggest tax and payroll surprises employees run into with stock grants?
The surprise is usually timing and cash flow. Vesting can create taxable income even if the employee doesn’t sell shares, which means a tax bill may arrive before there’s any liquidity. In some countries, employers must withhold income tax and social contributions through payroll at vest, which can reduce take-home pay in that period or require a sell-to-cover process. Another common miss is double taxation risk when employees move countries mid-vesting—your tax obligation can shift based on where the work was performed during the vesting period, not just where you live on vest day.
What should a stock grant agreement include for a global employee (beyond the basics)?
If you’re granting equity across borders, the “extra” clauses matter as much as the headline number of shares. You typically want clear definitions for termination scenarios and post-termination treatment, local tax responsibility language, and a process for handling required payroll withholding or reporting in the employee’s country. It’s also smart to spell out how you’ll manage mobility changes, like relocation or a switch from contractor to employee, because those changes can alter both compliance obligations and the employee’s expectations around vesting and exercise windows.
How can Oyster help you evaluate whether stock grants are feasible in a specific country?
If you’re trying to reward a distributed team with equity, the fastest way to get unstuck is to validate country-by-country feasibility before you promise anything in an offer. Oyster’s Equity Assessment Tool helps you sanity-check how equity may work for international team members and what tax considerations to expect, so you can design an equity approach that’s competitive without creating a compliance mess later.
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About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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