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Should You Pay Stock Options?

It used to be that stock options were reserved only for executives or members of top management. However, more and more employers are opting to offer stock options to all employees as part of their compensation package. In fact, more than 10 million American workers receive stock options as part of their compensation or as bonuses.

What Are Stock Options?
Stock options give employees the right to buy a specific number of shares of their company's stock during a time and at a price that the employer specifies. The price the company sets on the stock, also referred to as the grant or strike price, is offered to employees at a discounted price. This price is most often the market price of the stock at the time the employee is given the stock options. After a certain amount of time, an employee can elect to cash in his stock options. The idea behind this is that the stock price will have gone up during that amount of time, so the employee will be able to sell them at a higher price, thus yielding a profit.

Stock options always have an expiration date, which means employees have a limited window of time to cash in their options. They have a certain starting and end date, and if the options aren't exercised within the allotted time frame, the employee loses them.

Should You Pay Stock Options?
Stock options are becoming an increasingly popular way for employers to attract and keep valuable workers, help employees to feel like owners or partners in the business, and offering a form of compensation to employees that is more than a traditional salary. And unless the company goes out of business or loses money, it is a good way to motivate employees to accept jobs and stay on as their stock options make money, as stock options can provide a large amount of cash after a period of time.

Stock options are a particularly good idea for companies that are just starting out and would like to retain as much cash as possible. They allow starter businesses to hang onto cash while at the same time providing employees with a portion of the growth of the company. So small, growth-oriented businesses would be wise to offer their employees stock options.

Stock options aren't just for starter companies as well. For firms that have already gone public, stock options can help to include employees in ownership.

Clearly, stock options don't come without risks. For companies that don't perform well, stock options are useless and may even cause employees to lose money, which is certainly not good for morale or for employees. In addition, a number of laws are in place regarding stock options. Companies who offer stock options are required to expense stock options a the time they are granted, rather than when the employee exercises the option.
This upfront expensing of stock options is not always ideal for business owners, as it requires them to record an expense that may or may not ever come to fruition. This could jeopardize a company's chances of bringing in investors.

There are a number of benefits as well as drawbacks to offering stock options. For companies who are just starting out, stock options can be a win-win situation, as they allow companies to retain much-needed cash while still offering their employees the opportunity to share ownership in the business. Before deciding whether or not to offer stock options, it's important to take all factors into consideration.

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