Share this Page URL

Chapter 17. Show Me the Money! > Incentive Pay Plans - Pg. 213

Show Me the Money! 213 Team Terms Stock options are rights that enable recipients to purchase company stock at a fixed rate no matter what the market value may be. The incentive: If the market value increases, the recipient can exercise the right and make an immediate profit on the sale. Stock Options In an economy where more and more teams work in jobs in which performance cannot be measured by production figures, other types of incentive plans must be developed. Stock option programs provide opportunity for employees to benefit from an increase in the value of the company's stock. Employees are given "rights" to purchase the stock at a price that is lower than the market price. Let's say the stock is currently selling for $25 per share. Options are issued enabling employees to buy the stock at $22 per share. If they exercise the options immediately, they make a $3 per share profit. However, the incentive is to keep the options until the stock rises in value. A year later, the stock is selling at $40 per share. They can still purchase it at $22 and sell it immediately for a profit of $18. In the exploding Internet business, exercising stock