Share options give you the right to buy (or to sell) shares in a given company at a previously set price, regardless of the current market price.
If, for example, shares in company A are trading at 75 cents, but you have options that allow you to buy 10,000 shares at a price of 25 cents (this is known as the ‘strike price’), you could buy the shares, sell them immediately (this is referred to as ‘exercising’ your options), and make $5,000 profit.
Firms often issue options to employees in an effort to create incentives that align the interests of employees and shareholders. But employees should not accept options in lieu of salary without being aware of the very high risks attached to them. If the market price of the employer’s shares falls below the strike price of your options before they can be exercised (the “vesting date”), they are effectively worthless.
Share-option schemes are typically used as an incentive for employees.
Long Service Awards
Recruitment can be an expensive business. The cost involved in finding a new employee to fill a vacancy is generally significant (most studies suggest that the ‘one off’ costs amount to around $3000), but the long-term costs are frequently underestimated.
The value of a long-standing employee with a number of years’ service to the company cannot be reliably quantified, but these individuals tend to bring expertise and knowledge that a new recruit simply will not have. As such, many companies wish to provide an incentive scheme to reward long service and reduce employee turnover.
Find out more about increasing employee retention through share options by talking to a qualified Holborn Employee Benefits adviser today.