Performance Units are another form of deferred compensation companies can use to encourage growth. An employee can earn additional, deferred compensation depending on both the book or market price of the company’s stock at a future date as well as on the company’s achievement of performance goals. Much like any other incentive plan, the company first determines the areas of growth to be rewarded, such as earnings, earnings per share, return on investment, book value of the company's shares, or some other benchmark. The company then devises a plan which provides that, if the company achieves the desired benchmark, the company will pay the difference between the per share value at the time of the grant and the increase. An alternative is to pay a lesser percentage of the increase if only a portion of the goal is increased. If the goal was a 10 percent growth, but only 7.5 percent was achieved, the employee may be paid some lesser amount. Much as the other plans, at the end of the measuring period, the company pays the employee in cash, stock or a combination, normally in the discretion of the company. Just as with the other stock-based plans, the company can tie a performance unit to a stock option, or, if the securities requirements for issuing stock cannot be met, then a stock option can be converted to a performance unit or stock appreciation right and the employee receives as compensation the amount he would have received on the exercise of the option.

Please see the following articles for additional information; Employee Stock Option Plans, Tax Aspects of a Stock Option Plan, Federal Securities Aspects of a Stock Option Grant, Option Plan Decisions, Stock-based Compensation, Stock Appreciation Rights, Phantom Stock, Non-Qualified Deferred Compensation Plans, Texas Exemption for Employee Stock Option and Similar Plans.

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