Employee Stock

Why Employee Stock Options Make Perfect Sense For Corporations And Workers

Employee stock options are an incentive system which serve the needs of both the employer and the worker extremely well. They have been growing in popularity throughout the last twenty five years, and now they are commonplace in the compensation packages of anyone working at senior management level. It is rare to find someone working at that level now who does not have some kind of stock option package as part of their remuneration. There are several reasons for this popularity, one of them being the fact that companies have no up front investment to offer this benefit. There are also tax advantages, which can benefit either the worker or the employee depending on how they are structured.

For the employer, offering stock options makes perfect sense. It takes the risk out of offering a competitive remuneration package. The company can offer the options in the knowledge that should the share price not perform as expected, the options will simply expire worthless and not be claimed. The only loss to the company is if the share price does rise, as the directors will no longer own those shares. Of course, had the benefit not been offered to key employees the share price may never have risen in the first place.

The company also benefits from the fact that they can tie incentives and conditions into the offer. It is quite possible for a company to demand that an employee stay for two years before they become entitled to the stock options. If they leave before then, any entitlement is immediately wiped out. This may seem like a very negative way to try to attract loyalty, but if the positive incentives are high enough, employees will accept it and stay.

It is these incentives which make employee stock options attractive to workers. While there is no substitute for instant cash, stock options can help you to build your future. Options are exactly that, they are the right but not the obligation to buy. This means that there is no risk involved for you as a worker. If the share price has risen, you can exercise the option and buy your stock.

You will then be in a position to immediately sell your stock back into the market, but that is not necessarily the sensible thing to do. You can instead set a stop loss level below the market price at which you will sell the stock, and by doing this you open up the possibility of the price going still higher. If you move your stop loss position up below the share price, you can maximize your gains and sell at the right time. This is the best way of handling your allocation of employee stock.

 

 

 

 

 

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