Employee Stock Options

Knowledge Center

Summary, forum, best practices, expert tips and information sources.


What are Employee Stock Options? Meaning.

Employee Stock Options are granted to selected (senior) managers of a company according to certain terms. They carry the right (but not the obligation) to buy a certain amount of shares in a company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded call option because it is not generally traded on an exchange, and there is no put component (where a profit is made from the underlying stock following).

Normally employees must wait a specified vesting period before being allowed to exercise the option. The idea behind the stock option is to align incentives between the management and the shareholders of a company. Shareholders want to see the stock price to increase, so (in theory) rewarding managers when the stock goes up aligns everybody's goals. However there are a number of reasons why this alignment is far from perfect in reality:

  • Executives don't experience the same pain that stockholders do if the share price drops.

  • The incentive to executives disappears if the company's stock price drops to a certain point below the exercise price.

  • Options are given away too freely without sufficient regard to the dilution suffered by stockholders.

  • Companies sometimes unwisely spend money on a stock repurchase in order to reverse the dilution caused by the exercise of options.

Also referred to as Stock Option Plan.

Employee Stock Options Special Interest Group

Special Interest Group (4 members)

Forum about Employee Stock Options  

The most recent topics about: Employee Stock Options.

🔥 NEW Attractiveness of Stock Splits for Executives
I have heard that company executives are excited every time their stock splits (say, three for one)... What is so good (...)
Best Practices about Employee Stock Options

Here you will find the most valuable ideas and practical suggestions.

Expert Tips about Employee Stock Options

Here you will find professional advices by experts.

Information Sources about Employee Stock Options

Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Long-term Performance Based Incentives for Executives

Executive Compensation, Incentives (...)

Compare with: Employee Benefits  |  Phantom Stock Plan  |  Employee Stock Ownership Plan  |  Golden Handcuff  |  Golden Hello  |  Golden Parachute  |  Golden Handshake  |  Pro Forma Earnings  |  Treasury Stock  |  Unissued Stock

Special Interest Group Leader

Are you an expert in Employee Stock Options? Sign up for free

Link to this knowledge center

Copy this code to your web site:


Return to Management Hub: Change & Organization  |  Finance & Investing  |  Human Resources  |  Leadership

More on Management  |  Return to Management Dictionary  | 


This ends our Employee Stock Options summary and forum.

About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2020 12manage - The Executive Fast Track. V15.6 - Last updated: 30-9-2020. All names of their owners.