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Lesson 1. Employee Stock Options > Alternative Plans - Pg. 4

Employee Stock Options 4 · Nonqualified or nonstatutory. -- This is the most popular form of employee stock options. These options have the fewest restrictions and are the easiest to administer by the company. Nonqualified employee stock options have few, if any, restrictions placed on them, but also have no favorable tax treatment. They are most often used when the employee stock option plan covers all or a large number of employees. Companies can design nonqualified employee stock option programs to meet any number of management goals. Non-qualified options are explained more completely in Lesson 7, "When to Exercise Your Options." · Incentive or statutory. --These options must meet certain qualifications and conditions. Incentive options may generate favorable tax treatment if these conditions are met. Companies use incentive stock options (ISO) to encourage employees to remain with the company for a certain period of time. Caution Incentive stock options must meet all the conditions and restrictions imposed by the tax code, or they will lose their favored tax treatment. Employee stock option plans differ from company to company. Be sure you understand your plan's benefits and restrictions. Incentive stock options or ISOs have a number of restrictions on them regarding how long you can hold the stock, how many options can be exercised in a given year, and so on. ISOs are covered more completely in Lesson 6, "Nonqualified Stock Options." Because ISOs receive favorable tax treatment, this can make them more valuable, especially to highly paid employees and officers. ESPPs