Dating of stock option grants

Understanding the nature of stock options, taxation and the impact on personal income is key to maximizing such a potentially lucrative perk. An employee stock option is a contract issued by an employer to an employee to purchase a set amount of shares of company stock at a fixed price for a limited period of time.There are two broad classifications of stock options issued: non-qualified stock options (NSO) and incentive stock options (ISO).Having a sound process for setting the price is important because flawed procedures can have far-reaching and costly tax implications for both the employer and the employee.

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Purchasing a stock option is also known as exercising.

For more details on stock option grants and tips on determining the best time to exercise, read CNN Money's "Employee stock option plans." From the employer's standpoint, the idea behind stock option grants is to give employees the incentive to align their interests with that of the stockholders.

In the past, however, some stock option grants have been set at such low levels that executives ended up enriching themselves, not the shareholders.

From the employee's standpoint, a stock option grant is an opportunity to purchase stock in the company he or she works for at a lower price.

For this reason, these plans have long served as a successful tool to attract top executives, and in recent years become a popular means to lure non-executive employees.

Unfortunately, some still fail to take full advantage of the money generated by their employee stock.

Non-qualified stock options differ from incentive stock options in two ways.

First, NSOs are offered to non-executive employees and outside directors or consultants.

NSO and ISO plans share a common trait: they can feel complex!

Let's begin with the participants – the grantee (employee) and grantor (employer).

The latter is the company that employs the grantee or employee.

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