What Is an Option Schedule?

An option schedule is a list of options granted to the employees of a company. It contains information such as their exercise price, size, and vesting schedule.

The Securities and Exchange Commission (SEC) requires that option schedules for high-level officers and directors of public companies must be disclosed for public scrutiny. These are typically shown in the company’s 10-Q and 10-K filings.

Key Takeaways

  • An options schedule is a list of options granted to the employees of a company.
  • Public companies are required to submit their options schedules as part of their SEC filings.
  • Options schedules can at times be quite complex, especially when the company relies heavily on stock-based compensation.
  • Investors and analysts can use databases such as SEC EDGAR to scrutinize companies’ options schedules, which are generally found in their 10-Q and 10-K filings.

Understanding Option Schedules

Option schedules are important to companies and investors alike. For companies, they are useful for maintaining proper accounting records. For investors, they are a valuable window onto the company’s current and future liabilities and can also shed light on the risk of future stock dilution.

Option schedules are particularly important for companies that rely heavily on stock options as a form of employee compensation. In theory, stock options can help reduce the principal-agent problem by aligning executive compensation with company performance. After all, if an executive is given options that will only become valuable if the share price of the company increases, that executive will have an added incentive to focus on improving the company’s valuation. On the other hand, some argue that stock-based compensation can encourage executives to chase short-term results in favor of long-term improvements.

In the wake of options backdating scandals and other accounting shenanigans, investors are paying more attention than ever to the use of stock-based compensation. In response to these concerns, many changes have been made in recent years as to how employee stock options may be granted, reported, and presented to investors.

Electronic record-keeping, and the availability of online databases such as the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, have eased the information gathering burden for interested parties. Nevertheless, accurately estimating the likely cost and timing of when options will be exercised remains a complex task. For this reason, corporate governance best practices generally discourage companies from creating complicated and opaque option vesting schedules.

Real-World Example of an Option Schedule

In their 2018 financial statements, Tesla (TSLA) disclosed their option schedule in Note 15 of their 10-K filing. From it, we can see that the company had made available up to roughly 9.1 million shares for use in stock-based compensation for their executives and employees, relative to the ~173 million shares which were outstanding at that time.