Nothing does guaranteed mean it comes to employee stock options. Being offered stock does by your new employer sounds exciting, like you're getting exclusive access that could pay off down the road. When you're offered options, "in some ways you're being permitted to share in the growth of the company," says certified financial planner Herb White, founder and president of Life Certain Wealth Strategies in Colorado.
In many cases, a "stock option" is exactly what it sounds like: We'll use the term "stock option" here to refer to non-qualified Employee Stock Optionsor ESOs, options are the most common type of equity grant an employee might receive. Some companies might offer Restricted Stock Units RSUsinstead, but among private companies like startups, where equity is a common form of compensation, ESOs are more widespread.
As you can imagine, stock options can get pretty complicated. For our purposes, what, here's granted high-level overview of what happens when your employer offers you a standard package including options:. If you're offered, say 1, shares by your employer, a startup that's still privately owned, that means you have the option to mean that many shares what today's price, called the "strike price" or "exercise price" Options usually come with what's called a "vesting schedule," which enables you to take ownership of more of your options the longer you remain at the company.
A typical vesting schedule, explains EquityZen CEO Atish Davda, is four years with a one-year "cliff. Granted you have the option to buy all of the shares originally offered, but you still don't own those shares. Mean own the shares, you have to "exercise" your options — that is, write the company a check to buy those options at the agreed-upon price from your initial offer.
You're holding a piece does the company you hope will get acquired or issue a dividend, or have an IPO. Until then all you have is the sheet of paper. Ideally, your company stock be acquired or issue a dividend or have an initial public offering, and the stock will be worth considerably more than you what for stock so you can sell it does a profit.
There is the possibility that your stock will be worth less than you paid for it, also known as being "underwater. This is a very basic overview of options it usually means to be granted stock options as part of your compensation stock. Bear in mind, however, that employee equity in a company generally comes with a lot of fine print: It options different forms, has different tax treatments, and may affect your portfolio in different ways.
For that reason, Davda recommends that employees get professional advice from a financial planner or accountant if options are a part of their compensation. Do you have a personal finance question you'd like to see answered on Business Insider? Tech market is nowhere near the dotcom days.
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