Employee Share Options is a way to reward employees, or groups of employees, for performance. An option can give one employee the right to purchase some shares of a company’s stock at a pre-determined price (the “cost” of the option) and have the right, but not the obligation, to receive a percentage of that stock each year as compensation. In some ways, this is like an investment in your company’s future – you’re not sure exactly what the market will do next, but by buying now, you can lock in a price and lock in income for several years. This is one of the reasons many companies offer employee stock options as part of a package.
These options come in many forms. Some allow for annual vesting, where an employee can sell his or her option shares at any point during the life of the option contract and receive a payment based on the option price at that time. Dividends are also paid on these options, but they are paid only once – if you’re lucky, you may get an annual dividend payment that exceeds the cost of your options, but otherwise, you’re basically just paying money for the right to buy or sell a share of stock.
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