Stock Options

Topics: Taxation in the United States, Taxation, Income tax Pages: 4 (1575 words) Published: February 18, 2002
Since the late 1980's more and more people have been given the opportunity to purchase stock options. As of 2001, ten million employees have chosen to purchase stock options. Another survey established that 97 of the top 100 e-commerce companies gave the choice of options this year. For these reasons, it is important to understand what stock options are, the different types of options, and their advantages and disadvantages. A stock option gives any employee the right to buy a certain number of shares in the company at a fixed price for a certain number of years. Employees who have been given the choice of stock options hope that the share price will go up and that they will be able to cash in by purchasing the stock at the lower grant price and then selling the stock at the current market price. Stock option plans can be a flexible way for companies to share ownership with employees, reward them for performance, and attract and retain a motivated staff. These plans could also encourage the employees to look in that best interest of the company and other shareholders.

For growth-oriented smaller companies, options are a great way to preserve cash while giving employees a piece of future growth. They can also work for public firms whose benefit plans are well established, but who want to include employees in ownership.

Options are not a mechanism for existing owners to sell shares and are usually inappropriate for companies whose future growth is uncertain. They can also be unappealing in small, closely held companies that do not want to go public or be sold because they may find it difficult to create a market for the share. There have been disagreement on whether or not options are actual ownership. Some believe they are ownership because employees do not receive them for free, they use their own money to purchase the share. Others believe that since the employees can sell their shares a short time after purchasing them they do not have...
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