Employee Stock Options – How Do Stock Options Work

Employee stock options are a type of non-cash compensation offered to employees by a company. The purpose of offering employee stock options is to align the interests of the employees with those of the shareholders.

When a company’s stock price rises, the holders of employee stock options can directly benefit financially, especially if the stock price rises above the exercise price of their options. This provides employees with an incentive to behave in ways that will boost the company’s stock price.

Employee stock options are typically offered to members of the management team, but they may also be offered to non-executive staff or even non-employees, such as suppliers, financial consultants, lawyers, and promoters for services rendered.

To find a company’s outstanding employee stock options, you can refer to the notes accompanying the share capital on the company’s balance sheet. These notes will include information such as the number of outstanding stock options, exercise prices, and expiry dates.

If you’d like to learn more about employee stock options, the SEC website has an interesting article titled “Employee Stock Options Plans” that you can read by clicking on the link provided. It’s important to note that employee stock options should not be confused with Employee Stock Ownership Plans (ESOPs), which are retirement plans.

If you’re interested in learning more about ESOPs, you can visit The National Center for Employee Ownership by clicking on the following link.

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