A Company Key
Making sense of stock options.
sell later. Again, the
How do stock options
employee has to first
work?
buy
the stock at $5.
A. A stock option
•
The
last choice
gives an employee the right to
is
to
change
all the
buy a certain number of shares
options
to
stock,
in the company they work for at
buy it all at the dis-
a fixed price for a certain num-
counted price and
ber of years.
keep
it with the idea
Traditionally, stock-option
of
selling
it later,
plans have been used as a way
Norton Stern
maybe
when
each
for companies to reward top
Columnist
share
is
worth
$15.
management and "key" employ-
(Of
course,
there's
no
way
of
knowing
ees and link their interests with those
of the company and other sharehold- if this will ever happen.)
Another thing to know about
ers.
options
is that they always have an
More and more companies, howev-
expiration
date:
er, now consider all of their employ-
You
can
exercise your options
ees as "key"
The price the
company sets on
the stock (called
Unless the company goes out of business
the grant or
strike price) is
or doesn't perform well, offering stock
discounted and is
usually the mar-
options is a good way to motivate workers
ket price of the
stock at the time to accept jobs and stay on.
the employee is
given the options.
Since those
options cannot be exercised for some starting on a certain date and ending
on a certain date.
time, the hope is that the price of
If you don't exercise the options
the shares will go up so that selling
within
that period, you lose them.
them later at a higher price will yield
You
can see that unless the com-
a profit.
pany goes out of business or doesn't
Here's how it might work:
perform well, offering stock options
Company X gives or grants its
is a good way to motivate workers to
employees options to buy 100 shares
of stock at $5 a share. The employees accept jobs and stay on.
Overall, you can see that stock
can exercise the options starting Oct.
1, 2010. On Oct. 10, 2010, the stock is options do have risk and they are not
always better than cash compensa-
at $10.
tion if the company is not successful,
Here are the choices for the
but they are becoming a built-in fea-
employee:
ture in many industries.
The
first
thing
an
employee
can
•
do is convert the options to stock,
buy it at $5 a share, then turn around Norton Stern is a registered principal
with Franklin Financial Investments.
and sell all the stock after a waiting
Southfield. (248) 262-8810. Investments
period specified in the options' con-
are offered through Wachovia Securities
tract. If an employee sells those 100
Financial Network, LLC. Material is dis-
shares, that's a gain of $5 a share, or
tributed solely for information. It is not a
$500 in profit.
solicitation of an offer to buy any security
•Another thing an employee can
instrument or to participate in any trad-
do is sell some of the stock after the
ing strategy.
waiting period and keep some to
Q
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November 8 a 2007
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