Understanding Scrip in Employee Stock Options and Equity Compensation Plans

Scrip is a term used in the context of employee stock options and equity compensation plans. It refers to a document or certificate that represents ownership of shares of company stock, which an employee may receive as part of their compensation package. Scrip can be in the form of physical certificates or electronic records, and it typically includes information such as the number of shares owned, the vesting schedule, and any restrictions on transfer.

Scrip is often used by companies to grant employees equity compensation, such as stock options or restricted stock units (RSUs), rather than paying out cash bonuses. This allows employees to benefit from the potential appreciation in value of the company's stock over time, while also providing a tax advantage for the employer.

For example, an employee might receive 100 shares of scrip as part of their annual bonus, with the understanding that they will vest over a period of three years and cannot be sold until then. The scrip would serve as proof of ownership and would be recorded on the company's books as a liability until it is vested and transferred to the employee.