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Understand stock options before signing an employment contract

By On behalf of The Law Offices of Roderick V. Hannah, Esq., P.A.

If you are a Florida employee who is working for, or considering working for, a publicly traded company, you may be offered stock options as part of your employment agreement. Companies often want to offer incentives that will peak employee interest. Although stock options are largely thought to be a thing of the past, some companies still include them in executive employment contracts. Employees who have been given stock options need to do their research to learn more about their financial rights. That means learning something about stock option management.

First, it is important to understand that stock options provide employees with the right to purchase company stock at a certain price and date. For example, you might have a 10-year period to exercise your stock options, which means you could buy a specific number of shares at a lower-than-normal price. Generally, companies require employees to work for the firm for a period of time before they can actually purchase the stock.

Say, for example, that your company is selling stock options at $200 when you start working. You are given the option to purchase 1,000 stocks after your probationary period for the low price of $200. If the stock skyrockets to $1,000, you can purchase up to 1,000 shares and then resell them for a potentially hefty profit.

Be careful when considering stock options as part of your employment contract, however, as they can have serious tax implications. Be sure that you know whether you are purchasing non-qualified options or incentive stock options, both of which have specific triggers for taxation. Options can also expire in a down economy, causing the benefits of the stock to wither away. Knowing how and when to exercise your stock options can quickly become complicated and emotionally draining.

Before you say “yes” to an employment contract that include stock options, be sure that you understand how they work and how they might contribute to an overall benefits package. This knowledge can make the difference between exercising your stock options for profit or loss.

Source: NASDAQ.com, “Understanding Employee Stock Options” Neda Jafarzadeh, Dec. 03, 2013

Source: http://www.rhannahlaw.com/blog/2013/12/understand-stock-options-before-signing-an-employment-contract.shtml

  

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