Employee stock options worth

What Should I Do With My Stock Options?

An Option Pool almost always consists of non-voting shares, so employees will be able to benefit from the growth of the company without having to vote on management issues. Careful consideration should be given to the size of the Option Pool. Changing the size of the Option Pool is a complicated process and is best avoided if possible. The Option Award Agreement is the actual contract between the company and the employee receiving options.

The Short & Simple Guide to Employee Stock Options

But the Option Award Agreement will need to be customized each time one is signed by an employee. The Exercise Price can be a tricky issue.

Employees will get the most benefit from a low Exercise Price. It must reflect the fair market value of the shares on the date options were awarded not when the shares are actually purchased. At Ownr, we have a helpful tool built directly into your Dashboard to give a rough approximation of a reasonable Exercise Price when awarding options.

What is equity? Are stock options valuable? Don’t sweat it—we’ve got you covered.

Given that the overall number of options is limited to what is in the Option Pool, options come with definitive timelines for expiration. The most common situation where expiration dates are important happens when an employee leaves the company either through resignation or termination. The departing employee will have a certain number of days to exercise the options and purchase shares.

If the employee does not act within the set timeline, the options will expire and get returned to the Option Pool. These timelines are strict and need to be observed by the employee in order to avoid losing out on the options. A reasonably common expiry period is 90 days, although it will depend on each particular company.

In this case, the employee needs to decide whether to exercise the options and purchase shares.

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If the options are not exercised after fully vesting, they will be returned to the Option Pool. Options are intended to encourage employees to make a long-term commitment to growing the company. So it would be counterproductive if employees received all of their options at one time. Vesting provisions allow options to be awarded incrementally with the time spent working for the company. The longer the employee works at the company, the more options they will receive. Even with gradual vesting, there is usually a minimum amount of time required before any options are awarded.

It is quite common for a company to set a one-year cliff period, so if the employee resigns or is terminated less than one year after becoming an employee, they will not actually receive any options. With Ownr, employees can track their options over time, making it easy to see how many options have vested and how many more will vest over time. In most cases, employee stock options are granted at the so-called fair market value at the time of the grant.

In English, this means that the exercise price of your options is equal to the stock price on the date of the grant. If you work at a public company, the current stock price is easy to determine. For private companies, there is no independent and precise way to assess the value of the stock at any time. Private companies usually make a good faith estimate of the per share value at a few different times of the year and use that for grants that are made during that time.

You have a short window in which you can exercise your vested options when you leave a company — typically, this is 30 to 90 days as specified in the options agreement that you signed but probably never read. If your options are in a public company, the decision to exercise is easy.

If the current stock price is higher than your exercise price, do so, and then immediately sell the stock. Pocket the difference, pay some tax, celebrate your good fortune, and move on. If the current stock price is less than the exercise price, let your options expire as worthless, embrace the learning experience, and move on.

Almost no one becomes a millionaire from stock option grants. Very few companies manage to go public or be acquired for large valuations and typically very few employees within those companies have received large enough grants to change their lives. Get in touch. Employee Stock Options July 18, admin Uncategorized. What are they? How do the mechanics work? Should you exercise your options when you leave your company?