In the current difficult economic environment, equity incentives may offer a way to retain and encourage valuable key employees without additional expense. Such incentives can take an almost infinite variety of forms, but a simple example might be to grant stock bonuses to key employees based on their individual performance and/or overall profitability of the dealership. Such stock bonuses can offer genuine rewards to key employees without any cash expense to the employer. In fact, stock bonuses usually result in tax deductions to the employer in an amount equal to the fair market value of the stock.
The downside of such bonuses is that they also are taxable income to the employee, but there are ways to minimize this disadvantage. And if the employee is genuinely motivated to become an equity owner, he may regard the tax cost as an inexpensive way to let him acquire a stock interest without other expense.
Disclaimer: This blog is a highly simplified general discussion. It is not legal advice. Such advice should come solely from qualified legal counsel who understands your situation and who is familiar with all relevant facts, variations in state and local laws that may apply to you, and other matters beyond the scope of this blog.