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Lesson 6. Nonqualified Stock Options > Options as a Bonus - Pg. 28

Nonqualified Stock Options 28 · Companies can offer NSOs to all employees, full-time employees only, employees above a certain level, or employees who meet virtually any other criteria set by the company. · Nonemployees, such as outside directors, consultants, and so on, can receive NSOs, but not incentive stock options (ISOs). · There is no limit on the amount of NSO stock you can exercise in a single year. · The company wants to create an atmosphere of "employees as owners." Options as a Bonus Many young companies (and some older ones) want to preserve their cash to pay for growth and use options as a way to reward employees without draining the bank account. Caution Exercising your vested options and selling the stock may not always be in your best financial interest. Consider the long-term prospects of the company and decide if owning the stock is a better deal. Companies can grant NSOs that vest immediately or after a short period. This type of option has the effect of being a noncash bonus that allows employees to cash in the options whenever they want (within the grant period). Immediately vested options often have a shorter grant term than other types of options. Companies can issue NSOs at or below the market price of the underlying stock, creating immediate value in the option.