Each employee working in a company have different mindset. There are few employees who work really hard to support in the growth of the company. Such employees have to be always appreciated and supported by the company which will boost their confidence and they will think out of the box which will help the company in main ways. The company always cannot appreciate the employee through the payroll outsource services like paying more money to that employs as it might be against the laws of the company. In such cases company have to think about some non salary ways to appreciate the employee. One of such method is employee stock options.
Let us see in brief what it is
- It is an option given to the employee where he will get the right to buy the shares of the company at fewer prices. Generally the price is fixed and this type of price is called by many names like grant price, exercise price etc. This buying option will come with a deadline. That means the offer will be closed after the fixed period of time. In case such way the company can show the employee that they value him and whenever the company will gain profits at the same time the employee will also get profit. But if employee resigns from the company then the contract to exercise the stock is also closed or get invalid.
- The stock contract includes the start date from when an employee will have power on his stocks that means from that date the employee can sell his stocks. The company can also fix some time before the employee can start the selling of the stock. The contract will also have the information about how many stocks will be given to an employee and how many he can sell. Some time there are clauses due to which the employee will not get all the stocks assigned to him at once. Until the stockowner uses his stock they will not have any value.
- One of the reason to keep a fixed period of time to use the stock is if they employee in any case leave the company before that time period than he will not be able to enjoy any benefits of the stock. Like this they can make that employee stay for longer time in the company.
- There are two types of stocks which are given to an employee who has been outstanding in his work and played a key role in the growth of the company. They are nonqualified stock option and incentive stock option.
Hope you have gained some knowledge about the stock option and why it is given to an employee.