My company offered me stock options

Contents

  1. ESOPS Sops
  2. Negotiating Stock Option Packages | |
  3. The Downside Risk
  4. Here's what it means to be offered stock options by your employer

This line of thinking makes it hard to assign a monetary value to options. If you are viewing options as providing a potential nice surprise, then you want to make sure you at least have the potential of upside if the business does well. Whatever future value you think they might have, you should never rely on getting cash out of your options until the company is on a path to its exit. When I worked at a startup I viewed my salary as my only earnings. As explained above, options are usually only worth something when the company goes on to be a big success and has a successful exit.

An exit is otherwise known as a liquidity event for the company. For successful startups, a liquidity event will typically occur when the company is acquired by a bigger company, or if the company lists on a stock market via an IPO. Uber recently went public after 10 years of raising money in the private markets, so employees that joined 8—9 years ago are only now being able to get their hands on the full cash value of their options.

ESOPS Sops

Some scale-ups let their employees sell some of their shares in later stage fundraises. This is typically for early stage employees who can have a lot of their wealth tied up in options. There are additional complexities around timing of when you can get the cash. Venture capital VC firms nearly always get preferred shares when they invest in companies. The value of your options continues to get more confusing and uncertain!

To decide you have to make a trade off between certain cash now and potential cash later. Some people get worried about how it looks if they take the higher salary and lower options package, but that should not be a concern. In my view, your focus should be on whether the salary is enough on its own to satisfy you. If you have strong conviction the company is going to be a huge success and can manage the lower salary, you may be more inclined to take the package with higher options.

There is a risk-reward trade-off to be made:. Best savings accounts. Best checking accounts.

Negotiating Stock Option Packages | |

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The Downside Risk

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  6. 2. How many shares will my option allow me to purchase?.

TaxAct review. Credit Karma Tax vs TurboTax. What tax bracket am I in? If you sell the shares after they are credited to your account, the capital gain, that is, the difference between the sale price and the fair market value on the exercise date is taxable in your hands. In such a case, the taxation rules are the same as that on sale and purchase of stocks from the market. There is no tax if you sell after holding the shares for more than a year. Let's see how an employee can gain from ESOPs. On April 1 , suppose the company grants him shares, at an exercise price of Rs per share, which is also the market price that day.

Let's assume that the vesting period is two years. At any point after 1 April , he can pay Rs a share and get the shares. If the market price on 1 August is Rs , he can sell the shares and make a neat profit.

Here's what it means to be offered stock options by your employer

However, if the market price is Rs 50, he need not exercise the option. He can instead wait for the stock price to rise. Employees must decide the levels at which they want to exercise the option," says Rego. They must seek advice from a financial consultant for this. Option price - The price at which the shares are offered. Exercise period - The period within which the employees must exercise the option. ESOPs were the harbinger of good times in the s, when a large number of IT companies allotted them to employees and helped them take part in their growth, making many of them millionaires.

The company, started in , is known to have given away Rs 50, crore worth of ESOPs to employees since inception. By s, thousands of employees had become millionaires by encashing these when the stock was at Rs 7, The interest in ESOPs did not last long as the gains depended on the market prices of the shares.

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