| Three Tips To Value Employee Stock Option Plan Perfectly Today |
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| Written by Yolanda Morris |
| Tuesday, 07 September 2010 20:13 |
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The best and most talented employees are the ones that make household names of companies. However, it is usually expensive for new companies to attract the best talent in their industry or business. And even moreso to keep them for a long time. One way of achieving this for new, promising companies is the use of an employee stock option. It must be stated though that not every one understands what an employee stock option is. This is the goal of this article - to explain, in it's simplest terms, what an employee stock option entails and how it can be beneficial to the parties involved.
The best and most talented employees are the ones that make household names of companies. However, it is usually expensive for new companies to attract the best talent in their industry or business. And even moreso to keep them for a long time. One way of achieving this for new, promising companies is the use of an employee stock option. It must be stated though that not every one understands what an employee stock option is. This is the goal of this article - to explain, in it's simplest terms, what an employee stock option entails and how it can be beneficial to the parties involved. Employee stock options are offered to employees for three main reasons and these are discussed in this article, plus some other considerations. These are (1) attracting and keeping high caliber workers, (2) aligning employees financial interests with that of the company, and, (3) used as an alternative to traditional raises and bonuses. What an employee stock option does, if you have been offered one, is that it gives you (the employee) the right to buy, within a specified time frame, a number of the company's stocks and other traded securities. However, you are not under any obligation to exercise this right whatsoever, if you so desired. That's why they are called options. An employee stock option can and usually benefit both employer and employee in many ways. Introducing and offering employee stock options to staff also encourages staff to be more committed to the company's overall progress. If, for instance, you owned employee stock options in a company, it is obvious that you would want the company to do well financially. This is so that your employee stock options returns will be large enough for you. Therefore you would be more committed and loyal to the company than you would if you had no stake in the company's financial health and well-being. Staff also feel a sense of belonging and control if they own employee stock options in the firm. This can only be good for both parties. Having said all these, it must be stated that employee stock options (ESOs) come with some inherent risks. The experience may be all new to some people. Therefore, companies must be able to sit down with their attorneys and financial accountants or controllers to come up with all the details of owing stocks options as an employee in the company. It is important not leave things to chance. The different types of employee stock options must be made clear to all staff who are qualified to partake in it. The two main types of ESOs being qualified and non-qualified stock options. What these mean and how the company handles each of them should be made clear from the start. Possibly enshrined in the employee handbook. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. What will your position be with your employee stock options if your company was taken over by new owners? Stock Options Call Really interested in learning more about employee stock options? Visit this site for more information. Employee stock options are here to stay. |