Employee Stock Options

An Employee stock option is a call option (a financial contract between two parties, the buyer and the seller of this type of option) on a company's own stock issued as a form of non-cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder's interest with those of the business' shareholders. If the company's stock rises, holders of options experience a direct financial benefit. This gives employees an incentive to behave in ways that will boost the company's stock price.

Employee Stock options are mostly offered to management as part of their executive compensation package. They are also offered to lower staff, especially by businesses that are not yet profitable. They can also be offered to non-employees: suppliers, consultants, lawyers and promoters, and to members of the company's board of directors for services rendered.