Entrepreneurship and Small Business (ESB) Certification Practice Exam

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What is considered non-cash compensation in a business context?

Salary
Equity
Bonus
Commission

The correct answer is: Equity

In a business context, non-cash compensation refers to benefits provided to employees that do not involve direct cash payments. Equity, which often takes the form of stock options or shares in the business, falls squarely into this category. When businesses offer equity as part of a compensation package, they provide employees with a stake in the company's success, potentially leading to financial gains if the company performs well. This form of compensation can motivate employees to work harder, as they directly benefit from increased company value. Salary, bonus, and commission are forms of cash compensation because they involve monetary payouts for services rendered, whether as a fixed wage, performance-based bonuses, or sales-driven commissions. Therefore, equity is distinct as a non-cash compensation since it offers value in the form of ownership in the company while minimizing immediate cash flow impacts.