Compensation at Nonpublic Companies The executive compensation programs of the largest public companies often include the types of equity-based compensation such as stock options and performance shares described in this chapter. Smaller nonpublic companies often have the same types of strategic goals and want to provide the same types of compensation plans but do not have the equity types of compensation to offer because they do not have publicly traded stock.

Required:

1. What is the primary advantage of equity-based compensation such as stock options and performance shares?
   1. It is easier to administer than flat salary or performance-based cash payments.
   2. Short-term stock prices cannot be influenced inappropriately by executives.
   3. It aligns managers incentives (to increase value) with those of the shareholders.
   4. It is more consistent with generally accepted accounting procedures than other forms of compensation.
2. What types of compensation can nonpublic companies offer that would provide incentives similar to those offered by equity-based compensation?