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Why would a company issue employee stock options?

Stock options provide key employees with the option to purchase common stock at a specified price over an extended period of time. Stock options plans are great for employers and employees. Stock option plan provide an employee with the following:

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  • What are employee stock options?

    Stock options are typically granted to executives and employees to align their efforts with the overall goals of the organization. When a company issues stock options to employees, employees will hold the options over a service or vesting period, and then exercise them at a future date. Each stock option will have an exercise price, which is the price the employee must pay when the options are exercised. In return, the employee will be able to sell the options for their current fair-market-value.

  • How do employee stock options impact shares outstanding for a company?

    When stock options are granted to an employee, the total number of shares outstanding increases. Then, when those shares are exercised, the total number of shares decreases.

  • What is a service period or vesting period for stock options?

    The service or vesting period is the difference between the grant date and exercise date. For example, if a company issued stock options to an employee, but they had to remain with the company for 3 years, the service or vesting period would be 3 years.