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Employee Stock Options – Questions to Understand your Plan (Part 1)

Employee Stock Options – Questions to Understand your Plan (Part 1)

Photo Credit: Sh4Rp_i

As an employee, understanding the stock options you have been presented with can be a tough process. Financial lingo is not easily comprehended  by the average employee and because of the potential gap in understanding, important information about your stock options may be overlooked. With these common questions, we can help ensure that you have a full understanding of your current or potential stock option plans. Today, we will introduce the first three of ten questions that you should always ask when considering your plan.

What type of options have I been offered?

In our past blogs we have introduced the two most common types of employee stock options; non-qualified and incentive. As we have discussed, the main difference between these options lay in their taxation.  When presented with an option, be sure to understand the type of stock option you have been offered and be prepared with your own research concerning incentive and non-qualified stock options, their pros and cons and how they could affect you and your financial plans.

How many options do I get?

The total amount of stock options that a company can grant differs from one group to another for various reasons. How many options an employee is offered can be impacted by the size of the company, their pay standards, their industry and your position among countless other possibilities.  Keep in mind that it is a common trend among companies to award a larger amount of shares when there is a larger associated risk. Don’t focus solely on the number of shares you are being awarded but try to consider potential value and long term gains.

What is my vesting schedule?

A vesting period is the amount of time in which you earn the options. It is common for vesting to be based on merit and/or time within the company. When negotiating as a new hire, it is not unheard of for special vesting terms to be created; this can include special grants and recognition awards. Keep in mind that you will have greater flexibility if your vesting period is accelerated.

Be sure to check back later this week for parts two and three and for the remaining questions you should ask to understand your employee stock option plan.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today!

Photo Credit: Sh4Rp_i

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