What are stock options & how do they work?

Stock options are a form of compensation. Companies can grant them to employees, contractors, consultants and investors. These options, which are contracts, give an employee the right to buy, or exercise, a set number of shares of the company stock at a preset price, also known as the grant price. This offer doesn’t last forever, though.

What are employee stock options?

Employee stock options are offered by companies to their employees as equity compensation plans. These grants come in the form of regular call options and give an employee the right to buy the company’s stock at a specified price for a finite period of time. ESOs can have vesting schedules that limit the ability to exercise.

How many employees have stock options?

According to the National Center for Employee Ownership, approximately 6,500 employee stock ownership plans cover 14 million participants. Indeed, stock options, which give you the right to buy shares at a pre-determined price at a future date, can be a valuable component of your overall compensation package.