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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 their employees as "key. While options are the most prominent form of individual equity compensation, restricted stock, phantom stock, and stock appreciation rights have grown in popularity and are worth considering as well.

Broad-based options remain the 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 now give stock options to most or all of their employees.

Many non-high tech, closely held companies are joining the ranks as well. As of , the 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 fixed price for a certain number of years. The price at which the 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 consequences: Stock option plans can be a flexible way for companies to share ownership with employees, reward them for performance, and attract and retain a motivated staff. For growth-oriented smaller companies, options are a great way to preserve cash while giving employees a 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, is 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 go 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 on 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. If the employee answers that they have at least a moderate risk tolerance, the above questions would make a difference to which to choose.

If the answers about the stock are that it: I personally prefer RSUs because of the limited risk in them. Yes, there is more upside potential in an option because of the number of options issued compared to the number of RSUs for the same plan. I hope this helps explain the complicated bonus plans and which may be best for you.

Please contact me with any questions or comments,. Your use of this service is subject to our Terms of Use and Privacy Policy. Information is provided 'as is' and solely for informational purposes, not for investment purposes or advice.

Which is better fo Which is better for the employee? Here is table that compares both: Then they are yours to hold or sell Taxation In most cases options are taxed as income at the time of exercise, regardless of whether shares are sold or held.

Here are the questions I usually want to find out about the employee and the company before making a recommendation: How high of a risk tolerance do you have?

What tax bracket are you in? How stable has the stock performed over the last 3, 5, and 10 years? Compared to the stock market? How are the fundamentals of the stock right now? How does the sector that the stock is part of look for the future?

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Subscribe to your favorite stock rss feeds on Feedspot RSS Reader. Best Stock Market RSS feeds online. Subscribe to your favorite stock rss feeds on Feedspot RSS Reader. Home Blog. Terry's Tips Stock Options Trading Blog RSS Feed; Day Trade Review RSS Feed; TradeIndia Research | Stock Market India News RSS Feed;. Stock Options. With stock options, you can buy company stock in the future at the price that was current when you received the stock option. For example, if your company gave you a stock option last year when the price was $ per share and the price is currently $ per share, you would pay only $ per share to purchase the stock. A new requirement was placed on companies’ boards of directors (the official issuers of stock options) to set option strike prices (the price at which you could buy your Common Stock) at the fair market value of the Common Stock at the time the option was issued.