What is an 'Option Schedule'

An option schedule is a list of options grants to an employee or employees of a company that contains the date and size (in shares) of each grant, as well as the expiration date, exercise price and vesting schedule. Option schedules for high-level officers and directors of a public company must be reported to the SEC and are also typically shown on 10-Q and 10-K filings for the company.

BREAKING DOWN 'Option Schedule'

While the option schedule is most important to the company itself for maintaining proper accounting records, investors are also interested in the option schedule because it provides a window into current and future liabilities. It also shows the potential that common shares will become diluted, as exercised stock options add to the total outstanding share count.

There have been many changes in recent years as to how employee stock options may be granted, reported and presented to investors. In the wake of options backdating scandals and other accounting shenanigans, investors are paying more attention than ever to this lucrative form of employee compensation.

As a form of incentive, stock options remain a flashpoint with critics who contend they encourage a short-term bias. In theory, stock options should align corporate insiders' (managers) interest with those of principals (shareholders). The net effect on reducing the principal-agent problem remains mixed. For businesses with complex options schedules, however, it does create some challenges for analysts and strategists to keep up with the many contingencies brought on by outstanding stock options in a business's capital structure.

Electronic record keeping, including electronic data options available by federal regulatory agencies such as the Securities and Exchange Commission's (SEC), has eased the information gathering burden for interested parties. But the many possible scenarios for option exercise still complicates accurately estimating when and at what price unvested options might be executed.

As a matter of corporate governance, complicated option vesting schedules are generally frowned upon.

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