Employee Stock Options

Employee stock options usually were reserved only for the higher members of the workforce in the past. But as the workforce structure has evolved through the years, certain changes have recently given even rank and file employees the opportunity to enjoy stock options as one of their benefits working for certain companies. Stock options are simply benefits that a company provides to employees to give them the opportunity to have a stake of owning part of the company through stocks.

Employee stock options is usually a benefit or a privilege given by the employer to allow employees to buy a certain number of shares of company stocks at a certain price for a fixed period of time. Such options are usually common today for companies with publicly traded stocks. But some privately held companies may also offer the option to some of their employees using their own pricing scheme.

Stock options allow employees to have the means to own company shares where they can profit from in the future. Companies can offer different types of stock option plans for their employees. Different plans offer different advantages and disadvantages both for the company issuing them and the employees who avail of them. But in general employee stock options fall into two categories- the non-qualified and the incentive stock options.

Non-qualified stock options are plans that do not qualify for special tax treatments. Gains made on non-qualified stock options are treated as ordinary income during tax season. Incentive or qualified stock options on the other hand can qualify for special tax privileges. In this case, no income tax is charged at the time of exercise. But rather, the tax is deferred until the shares have been sold.

When an employee exercises a stock option being offered, there are three ways in which this could be done. The most straightforward way would be to pay cash for it. Employees give the employer the needed amount in cash in exchange for the stock certificates.

Another way would be to swap existing stock shares for the option stock. Employees can trade the stock shares that they already own in order to acquire a stock option. But this will depend if the offer is attractive enough to do so on the part of the employees without being on the losing end of the deal. So if an option to own additional shares is provided and the company offers them at a lower stock price, employees may exercise the option to swap their current shares for the new ones in exchange for more stocks than before.

Then there is also a cashless way to exercise a stock option. This can be made possible if the employee borrows money from a stockbroker in order to exercise the option of owning company shares. The employee then sells a certain part of the shares to the stock broker to cover for the costs of borrowing as well as the taxes and commissions