Whether you are trying to attract executives or employees, offering stock options will help you draw and retain the best candidates. To take full advantage of your plan, however, it is essential that you consult a professional financial and investment advisor. An experienced advisor will help you get the most of your options before you offer a plan to employees.
What Are Employee Stock Options?
As an incentive or reward, employers often offer the option for employees to purchase a set amount of company stock, for a specific and limited amount of time (usually a period of a few years). This contract also dictates the fixed price at which employees can purchase said stock, regardless of the current market price. While there are many types, the two basic types of employee stock options include:
- Non-Qualified Stock Options (NSOs): This plan is offered to non-executive employees, but is not given favorable tax treatment.
- Incentive Stock Options (ISOs): This plan is reserved for executive employees and is given favorable tax treatment.
Employees are incentivized by stock options because they have the ability to purchase stock at a fixed price, even if the value of the shares grows. When they “exercise” their option to purchase, they can then “cash in” by selling the stock at the higher market value.
In the last few decades, the use and implementation of employee stock options has increased dramatically. Employers see them as a key tool to attracting the best employees and to rewarding key personnel. Now, more than ever, companies are looking to reward all of their employees for their hard work and efforts. But before diving into a stock options plan, it is important know how such an offering will impact your company and employees.
Why Consult an Advisor When It Comes to Employee Stock Options?
Though the above-described explanation sounds simple, both types of employee stock options can be quite complex, and should be fully explored by your financial or investment advisor. Not only must the terms of the contract be followed, the plans must meet the complex rules of the Internal Revenue Code.
When exercising stock options, employees must also comply with a vesting schedule. The terms of the contract (including the vesting schedule), the amount of stock offered and purchased, and the price of the stock all impact both the employee and the employer in differing ways. An investment advisor will be able to fully explain the effects of these terms on your company.
No matter what trade you are in, your clients and customers come to you for specialized services, so why leave your investing and financial strategies up to chance. Consulting a professional financial and investment advisor will help your company offer the best incentives to employees, while still benefiting your brand. For all your financial and investment questions, please contact Lowery Thomas, LLC today.