How Stock Plan Administrators Can Communicate Potential Dividend Equivalent Income

Stock options have been granted to executives at a regional airline for many years. After losing two senior executives to competitors recently, the airline’s board decided to award performance shares in order to provide current year income on vested shares through dividend equivalents. Dividend equivalents are payments of cash or additional company stock an executive receives after the units vest. While stock options do not pay dividends, dividend equivalents can offer executives the flexibility to increase or supplement their income. This example explains the benefits and how they work.