Equity compensation is a form of payment that gives employees ownership interest in a company, typically through stock options or restricted stock units (RSUs). This type of compensation aligns the interests of employees with those of shareholders, as employees benefit directly from the company's success and growth. Companies often use equity compensation to attract and retain talent, especially in competitive industries like technology and startups. By offering a stake in the company, employers can motivate employees to work towards increasing the company's value, which can lead to higher stock prices and, consequently, greater financial rewards for both parties.