Employee Stock Option - ESO
 |
Definition of 'Employee Stock Option - ESO'
A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option.
|
 |
Investopedia explains 'Employee Stock Option - ESO'
The idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals. Critics point out, however, that there is a big difference between an option and the ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't feel the same pain as the owner of the stock. This is especially true with employee stock options because they are often granted without any cash outlay from the employee.
Another problem with employee stock options is the debate over how to value them and the extent to which they are an expense on the income statement. This is an ongoing issue in the U.S. and most countries in the developed world.
|
-
Employee stock options are a form of equity compensation granted by companies to their employees and executives.
Read More »
-
These plans can be lucrative for employees - if they know how to avoid unnecessary taxes.
Read More »
-
With early exercise, you forfeit some profit back to your employer, and incur income tax to boot.
Read More »
-
-
Learn the different accounting and valuation treatments of ESOs, and discover the best ways to incorporate these techniques into your analysis of stock.
Read More »
-
Learn the good, the bad and the ugly sides of this type of payout.
Read More »
-
There has been much debate over whether companies should treat employee stocks options as an expense. This article examines both sides of the argument.
Read More »
-
Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
Read More »
-
Find out how to get more than money from your employer.
Read More »
|
|
