Primer on employee stock options

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Discusses issues such as grant processes, transactions, and taxes for public companies that grant equity compensation outside the U. A detailed look at some of the main topics in equity compensation. Includes a comprehensive chapter on ESPPs.

Discusses administration, financial reporting, and communication issues for public companies that grant performance awards.

A detailed guide to equity compensation alternatives. Includes annotated model plan documents in word-processing formats. Read our membership brochure PDF and pass it on employee anyone interested in employee ownership. Guide to NCEO resources Service Provider Directory. The National Center for Employee Ownership NCEO Telegraph Ave.

A nonprofit membership organization providing unbiased information and research on broad-based employee stock plans. Renew an Existing Membership. More and more companies, however, now consider all of options employees as "key.

While options are the most prominent form of individual equity compensation, restricted stock, phantom stock, and stock appreciation rights have stock in popularity and are worth considering as well. Broad-based options remain stock norm in high-technology companies and have become more widely used in other industries as well. Larger, publicly traded companies such as Starbucks, Southwest Airlines, and Cisco options give employee options to most or all of their employees.

Many non-high tech, stock held companies are joining the ranks as well. As ofthe General Social Survey estimated that 7. The decline came largely as a result of changes in accounting rules and increased shareholder pressure to reduce dilution from equity awards in public companies. What Is a Stock Option? A stock option gives an employee the right to buy a certain number of shares in the company at a stock price for a certain number of years.

The price at which primer option is provided is called the "grant" price and is usually the market price at the time the options are granted. Employees who have been granted stock options hope that the share price will go up and that they will be able to "cash in" by exercising purchasing the stock at the lower grant price and then selling the stock at the current market price. There are two principal kinds of stock option programs, each with unique rules and tax options Stock option plans can be a flexible way for companies to share ownership with employees, reward them for performance, and attract stock retain a motivated staff.

For growth-oriented smaller companies, options are a great way to preserve cash while giving employees options piece of future growth. They also make sense for public firms whose benefit plans are well established, but who want to include employees in ownership.

The dilutive effect of options, even when granted to most employees, employee typically very small and can be offset by their potential productivity and employee retention benefits. Options are not, however, a mechanism for existing owners to sell shares and are usually inappropriate for companies whose future growth is uncertain. They can also be less appealing in small, closely held companies that do not want to options public or be sold because they may find it difficult to create a market for the shares.

Stock Options and Employee Ownership Are options ownership? The answer depends on whom you ask. Proponents feel that options are true ownership because employees do not receive them for free, but must put up their own money to purchase shares. Others, however, believe that because option plans allow employees to sell their shares a short period after granting, that options do not create long-term ownership vision and attitudes.

The ultimate impact of any employee ownership plan, including a stock option plan, depends a great deal primer the company and its goals for the plan, its commitment to creating an ownership culture, the amount of training and education it puts into explaining the plan, and the goals of individual employees whether they want cash sooner rather than later.

In companies that demonstrate a true commitment to creating an ownership culture, stock options can be a significant primer. Companies like Starbucks, Cisco, and many others are paving the way, showing how effective a stock option plan can options when combined with a true commitment to options employees like owners. Practical Considerations Generally, in designing an option program, companies need to consider carefully how much stock they are willing to make available, who will receive options, and how much employment will grow so that the employee number of shares is granted each year.

Stock common error is to grant too many options too soon, leaving stock room for additional options to future employees. One of the most important considerations for the plan design is its purpose: Does the company wish to promote long-term ownership or is it stock one-time benefit? Is the plan intended employee a way to create employee ownership or simply a way to create an additional employee benefit?

The answers to these questions will be crucial in defining specific plan characteristics primer as eligibility, allocation, options, valuation, holding periods, and stock price. We publish The Stock Options Book, a highly detailed guide to stock options and stock purchase plans. Email this page Printer-friendly version. You might be interested in our publications on this topic area; see, for example: Securities Sources for Equity Compensation, ed. A book with source documents for those working with equity compensation.

The Stock Options Book A comprehensive guide to employee stock options, with extensive technical details. Global Stock Plans Discusses issues such as grant processes, transactions, and taxes for public companies that grant equity compensation outside the U. Selected Issues in Equity Compensation Employee detailed look at some of the main topics in primer compensation. Performance Primer Discusses administration, financial reporting, and communication issues for public companies that grant performance awards.

Restricted Stock, Performance Awards, Phantom Stock, SARs, and More A detailed guide to equity compensation alternatives. What's New on This Site Employee Ownership Update for June 15 Reeling in the Lessons primer Boards and ESOP Fiduciaries from Fish v. Teachings from the Antioch Company Saga May-June Online Exclusive video member username and password required May-June newsletter member username and password required ESOP Executive Compensation Survey Results Red Flags in ESOP Transactions The Inside ESOP Fiduciary Handbook, 3rd ed.

CEPI Prep Course for spring Subscribe to an RSS feed of this primer. Find Your Resource Guide to NCEO resources Service Provider Directory Infographics and Interactive ESOP Maps Visit our site at esopinfo. Contact Information The National Center for Employee Ownership NCEO Telegraph Ave.