Stock compensation reserve, also known as a share-based payment arrangement, refers to a type of equity instrument compensation where employees or other parties provide services in exchange for equity instruments of the company. According to accounting principles, when a company grants equity instruments to its employees or other parties as part of their remuneration, a reserve is created to account for the fair value of the equity instruments or the cost of the services received. This reserve is typically reported as a component of shareholders' equity, under the heading "Capital Reserves" or a separate line item called "Share-based Payment Reserve" or "Stock Compensation Reserve." The value of the reserve is increased as the vesting conditions of the equity instruments are satisfied, and the associated costs are recognized over the vesting period. As the equity instruments vest, the reserve is reduced, and the corresponding expense is recognized in the income statement.