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I've been recently offered a job by a company that states they offer an "employee stock option scheme". What does this mean?

Can this considered positive generally speaking or does it mean that there could be any drawbacks for me? (for example they are going to pay me less if the company does not grow as they expect?)

I am going to have an interview with them soon, and I will ask to clarify this aspect, but I would like to understand something on the matter before speaking to them.

  • nytimes.com/2005/05/29/business/yourmoney/29millionaire.html would be a story from some years ago about the Microsoft Millionaires that got rich from the stock options. – JB King Jul 17 '13 at 21:25
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    In my experience... The advantages are that you feel you have a real stake in the company, and also you have a very small chance of getting very rich. The biggest disadvantage is that some of your income is deferred and might never be realized if you choose to leave or if the company make changes (dilutes the stock, unilaterally changes the terms of the agreement, etc). Say you work for a company for 10 years. A 200k payout sounds good if the company gets bought out, would you have been better off with a certain payout of 15-20k each year? Still, stock options are nice if you can get them :) – TooTone Jul 18 '13 at 10:20
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Essentially it means that the company will give you an option to buy stock in the company, for the current price of the stock.

This means the price you can buy the stock for is the current price of the stock, with the option to buy the stock in the future for that price.

Offers are usually limited to a specific amount of shares, vesting over time (for example, you can get 25% after 1 year of work, up to 100% of the offered shared after 4 years).

The shares will not normally be worth anything unless the company IPOs (goes public) or gets purchased - at which time, the stock price may be higher or lower than the option price.

In general - think of this as an incentive to stay in the company and make sure it is successful.

One employer I had that offered an "employee stock option scheme" said that it should be treated like a lottery card. It may be worthless, but if the stars align can make you a bit of money (how much depends on amount of stock and the relative difference between option price and actual price).

Word of caution - do not treat options as pay. Make sure your base pay is decent - stock options are a "bonus" that may or may not pay out.

  • Alright, so, if I understand correctly, assuming I am satisfied with my base pay, it is definetely a bonus, and can't be of harm anyhow, right? – Andrea Casaccia Jul 17 '13 at 21:17
  • @AndreaCasaccia - Pretty much. It is an "extra", that can pay out if the company does well. Don't forget that if you wish to exercise the option, you do need to pay for the stock first (though most companies have ways to help with that). – Oded Jul 17 '13 at 21:20
  • @AndreaCasaccia - You will always have the choice as to whether or not to exercise those options. They do expire, so be aware of that (usually 1 or 2 years). There will also be tax implications if the option price and the market price are different. Consult a tax professional. If you let them expire, it's like they were never there in the first place. They can't hurt you. However, as Oded said, there is no guarantee they will be worth anything. Also, stock options and IPO options are VERY different things. Be sure you know which you are dealing with. – Wesley Long Jul 17 '13 at 22:27
  • Options are a chance to sell the stock first and then buy it at a later date; hopefully, for less money, so you keep the difference. – user8365 Jul 18 '13 at 13:54
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    Pretty much anything labelled as a scheme is a way to pay you less with the promise of a mythical payout possible later. – HLGEM Jul 18 '13 at 19:17

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