What does granting stock with a substantial risk of forfeiture typically refer to?

Granting stock with a substantial risk of forfeiture typically refers to restricted stock plans. In such plans, employees receive shares as part of their compensation, but these shares are subject to certain restrictions and conditions that must be met before full ownership is granted. This usually means they need to fulfill a vesting period, which may depend on time served or performance goals achieved.

The key aspect of restricted stock is the notion of a "substantial risk of forfeiture," indicating that the employee does not entirely own the stock until the specified conditions are fulfilled. Once the employee meets the requirements, the shares become fully vested, and the risk of forfeiture is lifted, allowing them to retain their ownership of the stock without further conditions.

In contrast, stock options provide employees the right to purchase stock at a predetermined price in the future, rather than delivering stock directly. Employee stock ownership plans (ESOPs) provide a mechanism for employees to own shares in the company through a trust, and incentive stock options are a type of stock option with specific tax advantages. However, these alternatives do not inherently involve granting stock with a substantial risk of forfeiture, making restricted stock plans the correct choice for this scenario.