of the biggest challenges facing employers is recruiting and retaining
qualified, dedicated employees. Over the past decade, with unemployment
levels low and the economy doing well, one of the ways businesses
in many industries were recruiting the best possible talent and
keeping those employees happy was by offering stock options. For
the first time ever, the trend extended not just to top-level managers
and executives, but to people throughout the organization.
a result, the ability to participate in an employee stock option
plan became an integral part of many people's overall compensation
package. People who worked for medium-sized to large publicly traded
companies, as well as people in startup companies, were among those
getting options. Options were also sometimes offered as long-term
that the economy has slowed, fewer people are inclined to accept
a job based solely on handsome options packages. However, a responsible
company with a sound business plan can still offer its employees
a generous and lucrative stock option plan. And there is no less
reason today to exercise your options if the company you are working
for has realistic prospects for healthy growth.
trend of offering stock options to employees other than executives
began several years ago after Netscape won the initial public offering
lottery, setting the stage for a climate that was especially favorable
for Internet companies and other startups. These risky startups
needed to recruit the best talent away from large, well established
companies, so they started to offer the best possible incentives.
What could be better than becoming a partial owner of a company
with the potential for success? With stock options, employees can
both directly contribute to and directly benefit from the company's
options give employees the right, but not the obligation, to purchase
a predetermined number of shares in the company at a fixed price
within a certain period of time. One reason stock options are attractive
is the hope that the stock's value will increase, allowing an employee
to sell shares at a later date for a significantly higher price.
people reap significant financial benefits by participating in stock
options programs. So, if you truly believe in your company's potential
for long-term growth and success, and you're offered stock options,
you should seriously consider taking advantage of this compensation
some people have become millionaires
Most people have read news stories about startup companies recruiting
employees and offering stock options to people at all employment
levels. Then, when the company ultimately offered its shares to
the public, some people who exercised their ability to obtain stock
in the company - and this included even support personnel - became
instant millionaires. Yes, this did occasionally happen, more with
high-technology companies than with other types of businesses. But
even though most people do not typically become millionaires from
stock options, your financial outlook could improve if you obtain
stock in a company that prospers.
purchasing stock in a company (exercising your options), you are
becoming a partial owner in that company. If the company prospers
and the value of its stock increases, you benefit. When you own
stock in a company, you're an investor. Thus, the more you know
about how the stock market works, the better you will understand
how your investment portfolio performs.
financial experts agree that stocks tend to be the most financially
rewarding investment someone can make as a long-term financial strategy.
While maintaining a diverse portfolio is one of the keys to success
as an investor, the growth of your investment portfolio can begin
when you exercise the stock options you're offered by your employer.
can offer stock options to employees on an ongoing basis, during
a specific time of the year, or as a one-time incentive or reward.
Based on the type of stock option plan being offered by your employer,
you should understand your eligibility to participate in the program,
know how the allocation of the stock options works, know what vesting
opportunities are offered, understand the valuation of the stock,
and determine the holding periods involved.
you believe your company will experience long-term success before
experiencing problems, you might think twice about exercising your
options immediately. If the company you hold stock in is likely
to have success in the short term, that's when it is advisable to
exercise those options as quickly as possible. After purchasing
stock, employees sometimes must hold on to their shares for up to
several years before divesting (selling their shares - for a profit,
- Brian Braiker, Salary.com contributor