Your questions answered
Stock options as compensation means when an employer offers employees stock options (or share options – they mean the same thing) that have no value at the time, but which could be worth a lot in the future. Options mean the employee will have the right to purchase a certain number of shares at today’s price on a defined future date.
Stock options can be an attractive part of a compensation package if your company has ambitious growth plans and might potentially make a public share issue in the future (such as floating on AIM or the London stock market.) They can motivate employees to work hard to help grow the business, because they will potentially get to share the bounty if the company floats.
However, share option schemes can be expensive to set up, especially for small or start-up businesses. They’re of no value to employees unless the company’s shares are likely to increase in value and there’s a realistic prospect that they will be able to sell them to external shareholders at a profit in the future.
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