Stock Option Incentives

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Stock option incentives are stocks given to investors at higher prices in order to entice the investor to stay with the company and acquire more equity. Find out how stock option incentives often have qualifying factors with information from an investment manager in this free video on investing.

Part of the Video Series: Stocks & Mutual Fund Investments
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Video Transcript

So what is a stock option incentive? A stock option incentive, a lot of times, is where a company will say, "For certain performance, for certain goals that you achieve, you qualify for this option to buy the company's stock at a particular price." And they'll either allow you to buy it at a particular price or, in some circumstances, they'll actually give you the stock. And what they'll do is they'll give you the stock, but it may be higher, and it usually is higher, than the trading price -- the market price at that time. The intention being that what they want you to do is to hold that stock for a while. They want you to stay at the company because if you were to take the options immediately, you wouldn't really...you wouldn't be able to sell them at a profit and, in essence, they probably just stay with the company because they would be of no value to you at that point in time. But it does...is a way for a company to provide an incentive plan where you can take ownership of the company slowly over time, building up stock incentives. So you know, companies will give stock option incentives with the intention being that you'll receive those options for stock, although they may not, you know, have anything really to be sold or gained from immediately. You've got those options available and the intention being that you will stay with the company, you'll hold onto those pieces, and slowly, over time, build some ownership in the company and acquire a considerable amount of equity going forward on the options that you own.

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