Many startup businesses give equity to their employees in form of shares or options. Issuing options and issuing shares appear similar but they are different. You get an actual share of a company when issued with shares. Options on the other hand, are the standard way to compensate employees in terms of equity in startup companies.
Employees get to buy shares at a predefined price in future when issued with options. Many companies find it better to offer options rather than shares.
Offering options motivates and rewards employees for the value they add to the company but issuing shares enables the employees to gain from the value that has already been created by others in the past.
Employees stay longer in the company so as to earn all options that have been made available to them when issued with shares. During the initial stages of a company, companies should issue options to employees to enable incentives to stay within the company.
Issuing actual shares may increase tax bills, for employees who have not invested in a company.
An option scheme known as the Enterprise Management Scheme is an option scheme found in UK companies which has tax benefits.
It is very important as it reduces the amount of tax the employee needs to pay on the shares they have acquired.
Having a sense of ownership for their company makes employees to be more hardworking. When share of the wealth created is offered, employees are more motivated to improve the company’s performance.
Employee stock options benefit both employees and employers. Incentive stock options and non non qualified option plans are the two basic types of option plans. Small businesses are now benefiting from employee stock options.
A stock option can be defined as an offer by a company that gives employees the right to buy a specified number of shares in the company at a given price by a given date. The employee should not buy part or all the shares as stated in the option.
Stock options are not only beneficial to Companies but are also cost-efffectice. It is true to say that stock options make employment packages to be more attractive.
Keeping employees motivated and loyal is the aim of many employers. Stock options help companies to improve the level of motivation and loyalty among employees. Employees become more focused to achieve a company’s goals by exercising stock options.
Many companies know how difficult it is to attract staff who are talented. Realistic stock options attracts and keep talented staff.
Stock options initially have little or no risk for the employee financially. The employee can choose not to buy a stock if the company offers stock at too low prices when they are not valuable