Employee Stock Options

Employee Stock Options

Employee stock options- also known as ESOs are lucrative employment agreements between employers and employees.

Tech companies, IT companies, software companies and similar businesses sometimes offer ESOs as a way to attract talent and finance talent in alternative ways.

Stock options allow employees to purchase part of a company in the form of a share. The stock option is usually provided to the employee at a discounted rate.

ESO Considerations

In determining whether you’re getting a satisfactory deal from your ESO, you should consider whether you see your position at the company as a long-term endeavour. If you’re still figuring out your career path or if you’re unsure of whether you see yourself growing with the company, you may want to carefully consider the ESO and the risks involved with taking on an ESO.

The other issue to consider is the company’s current financial condition. If the company is a public company, you’ll have somewhat of an understanding of its financial standing, given public disclosure requirements.

If the company is private, you may want to request having an advisor or an account closely review the company’s accounts and statements.

The other consideration is the company’s current life-cycle. If the company is close to an IPO or preparing for an IPO, the company is at its highest risk phase and its prospects for investor funding may be limited given the company’s new status.

The next consideration is the share of stock that you’re being offered. You will want to consider whether you’re receiving a fair share in relation to your position in the company and the number of shares being issued or set aside for investors. You should evaluate the company’s capitalization table.

While ESOs can be lucrative for employers and employees, they can be drafted in a one-sided manner. For several reasons, it is prudent to seek the counsel of a qualified business or employment attorney. In determining whether you’re getting a satisfactory deal from your ESO, you should consider whether you see your position at the company as a long-term option.