#4. Re: Equity Based Compensation ( Professor Follow-up)
I agree with you that equity based compensation is important for long-term retention of employees and can be used well. It also helps to minimize agency conflicts – agency conflicts are those arising when the interest of employees is not aligned with the interest of the shareholder. For instance, an employee may take a decision based on potential bonuses, but that may not be the best option for the company, thus affecting stock price. But if the agent is also the shareholder, then he/she has an incentive to promote decisions that will increase or maximize shareholder’s wealth (stock price). You can learn more aboout this topic under https://www.investopedia.com/terms/a/agencyproblem.asp.
Class, can you think of an example of an agency confict you have experienced at work? How would equity based or other forms of compensation affect it?
thank you for sharing on how we file our taxes. Aside from the income we receive from a job, Form 1040 is used to declare most of the income we received. Of course, our job tends to be the main source of income – at least for a majority of us. One way employees can determine how much income they have received during a given year, but also how much taxes they may have paid (in terms of withholdings) is to look at their W-2 form. This is a form provided by the employer to the employee detailing the wages, withholdings, deductions and some of the benefits received. Aside from a W-2, an individual may also receive a 1099MISC form. What do you believe is the difference between the two and when should employers use each?
Employees report their income on form 1040 for the federal government and in many cases also pay taxes and report income to the state using a local form. Federally, income is subject to income tax as well as social security and Medicare tax, both examples of FICA taxes. Employers pay equal taxes on behalf of their employees to social security and Medicare as well as FUTA, or Federal Unemployment Tax Act, taxes on the first $7,000 of each employee’s wages or salary. Employers can deduct employee compensation.
