Chapter 16 Employee Stock Options

Employee stock options are call options on a company’s stock granted by the company to its employees. The options give the employees a stake in the fortunes of the company. If the company does well so that the company’s stock price moves above the strike price, employees gain by exercising the options and then selling the stock they acquire at the market price.

Many companies, particularly technology companies, feel that the only way they can attract and keep the best employees is to offer them attractive stock option packages. Some companies grant options only to senior management; others grant them to people at all levels in the organization. Microsoft was one of the first companies to use employee stock ...

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