Evergreen Option


DEFINITION of 'Evergreen Option'

A type of employee stock option plan in which additional shares are automatically granted to the plan every year. Under an evergreen option plan, the number of shares granted is based on a set percentage of the company's common shares outstanding. In most cases, these plans don't have an expiration date and do not require shareholder approval. However, the board of directors must approve how many shares will be automatically allotted to the plan each year.

An evergreen option may also be called an "evergreen provision" or "evergreen plan."

BREAKING DOWN 'Evergreen Option'

An evergreen option gives a publicly traded company a way to attract and retain excellent managers and employees by providing them with additional compensation above and beyond a salary. Because the shares granted by an evergreen plan will be worth more to the managers and employees who receive them if the company performs well, evergreen plans help align their interests with those of shareholders.

The downside of evergreen provisions for shareholders is that the annual issuance of additional shares causes dilution. Moreover, the new shares may be issued even if the company isn't performing well.

  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  3. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  4. Evergreen

    A contract provision that automatically renews the length of ...
  5. Dilution

    A reduction in the ownership percentage of a share of stock caused ...
  6. Reload Option

    A type of employee compensation in which additional stock options ...
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  1. What is dilutive stock?

    Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that ... Read Full Answer >>
  2. What is an evergreen provision and how does it affect shareholders?

    It is common for publicly-traded corporations to provide more than just regular salary compensation to their management and ... Read Full Answer >>
  3. How do mutual fund managers make money?

    Mutual fund managers get base salaries, which vary greatly depending on the size and pedigree of the fund company. They may ... Read Full Answer >>
  4. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  5. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

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