Define Stock Options to Employees
Stock options are a form of employee compensation and benefits. Corporations offer employee stock options as a means to attract top talent. You should learn how these benefits are structured before making investment and employment decisions.
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Identification
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Employee stock options grant employees rights buy stock in the corporation at a strike, or predetermined, price.
Features
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Stock options become more valuable as company share prices in the market advance beyond the strike price. Conversely, stock options are worthless when corporate stock prices fail to exceed your options' strike prices.
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Misconceptions
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No one-size-fits all rule exists for the tax treatment of your employee stock options. In general, you will be responsible for capital gains taxes after selling stock you have received. In some cases, your stock options will trigger the alternative minimum tax.
Benefits
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Employee stock options motivate executives to take steps to improve stock market performance for corporate shares. Executives may do so through sales expansion and acquisitions, which improve business profits.
Risks
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Employee stock options increase the amount of shares outstanding for the corporation. Additional shares dilute, or reduce, earnings per share (EPS) for all shareholders. Lower EPS statistics may cause share prices to fall.
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