The US job market is volatile. It has resulted in companies thinking of more ways to keep their employees. After all, high attrition rates damage a company’s bottom line. The right benefits go a long way in ensuring workers are happy and productive.
Benefits like flexible hours and dental insurance are big attractions. So is the promise of professional development. Many companies are also offering their employees stock options. Unfortunately, most employees don’t understand what this perk is. They have less knowledge of how to exercise it and use it to their advantage.
Quick Overview of Stock Options
A stock option gives the holder the right to buy a specific stock. They can buy it at a predetermined price. The holder and the stock issuer would agree on the amount. This is also called the “grant price.” This price is effective within a specified time frame.
Stock options have two uses. They’re used as a form of incentive. It gives the employee a chance to secure a big financial gain. But this depends on the company’s success.
It’s also used to secure employee retention. Stock options have vesting schedules. This is the date when the employee can exercise this option. Vesting can last for a decade. An employee who wants to exercise stock options would have to remain in the company.
Investors should note that a stock option is a privilege. It’s not an obligation. The holder can opt not to exercise this option.
Employee stock options work in this same vein. It’s a contract between the employer and their employee. The latter has the right to buy shares of the company’s stock. The shares available are often common stock. The company will sell them to the worker at a price both parties agreed upon.
Many companies are now offering employee stock options. They’re offering this benefit to new hires and valued employees. It’s a way to incentivize their stay. It also makes them invested in ensuring the company succeeds.
What Does Exercise Stock Options Mean?
Exercising stock options refers to the employee buying company shares. They will buy the shares offered to them by the company. These stock options are one part of their compensation package. It’s a benefit most tech companies give their employees.
The shares have a fixed price. It’s also called the “strike price” or the “grant price.” The offer of a stock option also comes with a time frame when employees can exercise them. It’s also referred to as the “exercise period.”
Employees who decide to exercise stock options will pay the strike price. This gives them equity in the company. It also gives them the chance to have a financial windfall.
Let’s say the employee exercised this option. They saw that the shares’ current market price is higher than the grant price. They can sell their shares and secure a tidy profit. Or they can also hold on to their shares and hope the price goes up further.
When Should You Exercise Your Stock Options?
You can’t exercise your stock options right away. You’ll have to earn it. You do this by staying at the company for a specified duration. Some companies’ vesting schedule depends on employee milestones.
Exercising your stock options can also affect your taxes. This is especially true if you’re lucky to have a windfall. It’s best if you talk to a tax advisor first before buying any options. They will help you determine the best time to exercise stock options.
There are several factors you have to consider. You have to see if your options have value. The type of company you work for can also affect your decision. Private and public traded companies work in different ways. You might have to shell out your own money if you work in a private company. It’s because these firms don’t trade on the stock exchange.
A Final Word
Secure your future with the help of Legacy Stock Transfer, Inc. Our company is one of the best stock transfer firms in the country. We specialize in customized stock solutions. We can address any stock transfer issues you have. We have an experienced team of transfer agents available 24/7. They will help and guide you. Our services include issuing new certificates and replacing lost ones. We help maintain shareholder records. We also work with DWAC FAST and DTC systems. We can also help with restriction removals. Call us at 972-612-4120 or drop us a line here.