ContractsCounsel Logo
Home Blog Reviewing Your Employee Stock Options

Jump to Section

ContractsCounsel has assisted 24 clients with stock option agreements and maintains a network of 39 employment lawyers available daily.

Traditionally, employees were looking to go to the job that offered the most cash in hand. Salaries and bonuses were the primary forms of compensation for employees. However, as the tech boom brought more startups into the limelight, employees became interested in stock options.

No longer just an option for wealthy owners, many hardworking employees are now in the position to translate their work in the company into actual ownership.

What Are Employee Stock Options?

Employee stock options are a form of potential ownership given to employees in exchange for the labor provided to the company. Stock options allow employees to purchase stock in the company at a highly competitive rate.

Employee stock options are generally used to motivate an employee's performance by providing them with "skin in the game" and the chance to gain directly from their hard work.

An employee would gain if the stock price increased while holding the options. The grantee is a corporate executive or an employee. The grantee receives equity compensation in the form of employee stock options.

An important distinction is that employee stock options are not stock themself. They are only the option to purchase stock later on. They are typically subject to various conditions, the most notable of which is the term when vesting stock.

The vesting period is when an employee must wait before they exercise stock options. Employees are typically subject to a vesting period so that they employ a reason to continue performing well and remain with the organization. Vesting occurs according to a predetermined timeline established by the corporation at the time of option award.

Here is an article about employee stock options.

Types of Employee Stock Options

Most employee stock option plans typically fall into two different types:

Incentive stock options (ISOs), also known as statutory or qualified options, are often exclusively granted to senior personnel and top management. In many circumstances, they obtain favorable tax treatment since the IRS regards gains on such options as long-term capital gains.

Employees at various levels of a corporation, as well as board members and consultants, might be issued non-qualified stock options (NSOs). Profits from non-statutory stock options are treated as regular income and taxed accordingly.

A document for your employee stock option plan will explain the restrictions that apply to your options. Employees need to get a copy of the plan and contact a knowledgeable advisor to walk through the qualifications tied to the option.

Considering the investment risk, tax impact, and market volatility can help you tailor a choice that you feel comfortable with to fit your financial concerns.

Here is an article describing the types of employee stock options.

Terms To Understand in Your Employee Stock Options

Employee stock options can come in various forms as companies structure their equity compensation programs differently. Aside from NSOs and ISOs, there are other terms to be familiar with in reading and discussing your employee stock option plan.

  • Restricted Stock Unit (RSU) plans. A restricted stock unit plan differs from a traditional employee stock option in granting an employee the right to purchase or receive shares after satisfying specified requirements RSUs may be given to employees who have worked for several years or reached performance benchmarks. In addition, unlike employee stock option plans, RSU stock plans do not have an exercise price. They may allow the employer to provide the value in actual cash.
  • Stock Appreciation Rights (SARs). A stock appreciation right grants the employee the right to profit from a set number of company shares over a specified period of time. SAR plans may be payable in actual company stock or, similar to RSU plans, SAR plans might be paid out in real cash.
  • Phantom Stock. A phantom stock agreement gives a future cash bonus equivalent to the value of a certain number of shares. There typically is no legal transfer of share ownership. Still, the phantom stock may be converted to genuine shares if certain trigger events occur. The phantom stock allows employees to gain the value of the stock increase while leaving the company with the stock ownership.
  • Employee Stock Acquire Schemes. These plans allow employees to purchase company stock at a discount.

Here is an article about terms to understand in your employee stock options

Meet some lawyers on our platform

Michael K.

101 projects on CC
CC verified
View Profile

Damien B.

19 projects on CC
CC verified
View Profile

Gill D.

55 projects on CC
CC verified
View Profile

Umar F.

3 projects on CC
CC verified
View Profile

How To Review Your Employee Stock Options

Reviewing stock options can be overwhelming. Many employees who are not accustomed to going through equity exercise options may feel uncertain about how choices might affect their future plans. Employees, including you, should take comfort in knowing this is a good problem and one that can become by learning the basics and seeking professional advice.

Employee stock options all have one thing in common: they expire, and the time to act is limited whether you choose to exercise your stock options. Set aside some time to evaluate your decision.

Increased volatility in the value of your employee stock options might be caused by general stock market movements or particular public announcements at your firm. In addition, your stock options may do various things as the firm equity fluctuates with the stock market or on its own.

Seeing the value of your stock options fluctuate so fast may cause you to reconsider your initial strategy, but be sure to consider your long-term goals as unexpected and sudden volatility might be an indicator of only a short period.

Rather than focusing on your options' short-term price swings, turbulent periods are a good opportunity to revisit your long-term strategy. Price movements are frequently short-term, but your concentration is on the long-term. Allow your strategy to unfold or make important and deliberate changes as needed.

It may be beneficial to review how effectively your strategy has done thus far. For example, you may have disposed of a certain number of shares in accordance with your vesting and/or expiration schedule. Divesting shares is one strategy to avoid overly investing in your company's equity. It may also stretch your tax burden across several years instead of just one.

A mix of analyzing prior decisions and creating short and long-term goals is an excellent strategy to manage fear and anxiety that comes amid market turbulence.

Here is an article about reviewing your employee stock options.

Grant Price vs. Exercise Price

A grant is a cash reward granted by one entity (often a corporation, foundation, or government) to a person or a firm to help them achieve a goal or to incentivize performance. Some awards need waiting periods, known as lock-up or vesting periods, before the recipient may fully possess the cash incentive.

After the waiting period, the employee can exercise the stock options and purchase shares, frequently at a price lower than the company's current market value. In addition, actual shares of stock are sometimes provided and can be sold after a waiting period.

Employees are frequently given stock option grants after working for the firm for a certain amount of time. Each firm determines how its grant program works. Still, most of the time, workers must continue to work for the company and are not allowed to exercise their given options (sell their awarded shares) for a specific time.

Furthermore, grants often follow a vesting schedule in which rights to financial benefits accrue over time. For example, if employees stay with the firm, they get 50% vested in the incentive if they remain firm. At that moment, even if employment termination is needed, the employee has inalienable rights to half of the award.

From the perspective of the employer, the goal of a stock option award is to incentivize employees to align their interests with those of the shareholders. A stock option grant is a chance for an employee to acquire shares in the firm for which they work. The grant price is typically established at the market price when the grant is awarded.

If the stock's market price rises, the grant price remains unchanged. The employee purchases a stock at a lower price than market value while exercising the option. Grant prices are comparable to call options, except they do not have an expiration date.

When you are granted employee stock options in a private or public firm, your exercise price or strike price is the price at which you can acquire a specified number of shares. The exercise price is determined by the option's Fair Market Value when it is issued. It is crucial information regarding your employee stock options for two reasons.

The exercise price is utilized to calculate the monetary amount necessary to exercise your options and the tax consequences. To exercise your choices, you must pay the strike price multiplied by the number of vested options you desire to execute in return for your shares.

Taxes are then determined based on the difference between the stock's current Fair Market Value and your strike price. Taxes are assessed differently based on the Employee Stock Options awarded to you.

The workout price determines where you are in the money. If the current stock price is higher than your exercise price, your options have a positive value. Conversely, your possibilities are termed under-water if the current price is less than your exercise price. Often, the exercise price is less than the current trading price.

Here is an article about the difference between grant and exercise prices.

Should I Hire a Lawyer to Review My Stock Options Agreement?

Incentive stock options, non-qualified stock options, restricted stock, and phantom stock agreement may all seem like complicated terms to someone who does not regularly review employee stock option plans.

These terms and conditions are not difficult to grasp but have real-world consequences. For example, stock options may be an excellent benefit for a new employee, and hiring startup lawyers may be worth the cost to ensure you are set for high returns down the road.

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Need help with a Stock Option Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,522 reviews

Meet some of our Lawyers

Ryenne S. on ContractsCounsel
View Ryenne
4.9 (416)
Member Since:
October 11, 2022

Ryenne S.

Principal Attorney
Free Consultation
Chicago, IL
14 Yrs Experience
Licensed in IL
DePaul University College of Law

My name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.

Ted A. on ContractsCounsel
View Ted
4.9 (19)
Member Since:
August 10, 2023
Jeff C. on ContractsCounsel
View Jeff
5.0 (9)
Member Since:
July 31, 2020

Jeff C.

Outside General Counsel / Business Attorney
Free Consultation
37 Yrs Experience
Licensed in CO, OR
University of Oregon

Experienced and broad based corporate/business attorney and Outside General Counsel (OGC), for start-ups, small businesses and growing companies of all sizes, advising and assisting clients with corporate and LLC formation, contracts and agreements, internet and terms of use/service agreements, trademarks and intellectual property protection, the purchase and sale of businesses (M&A), labor and employment matters, compliance and risk management, corporate governance, and commercial leasing matters. See other reviews on my website at

Tiffany O. on ContractsCounsel
View Tiffany
5.0 (6)
Member Since:
January 3, 2024

Tiffany O.

Free Consultation
Washington, Utah
8 Yrs Experience
Licensed in NM, UT
J. Reuben Clark Law School

Tiffany received her Juris Doctorate from the J. Reuben Clark Law School, Magna Cum Laude. She is admitted to the Utah State Bar and the New Mexico State Bar. She practices in the areas of real estate, general business, business formation, employment agreements, and civil litigation.

Brian J R. on ContractsCounsel
View Brian J
5.0 (1)
Member Since:
January 4, 2024

Brian J R.

Managing Partner
Free Consultation
Raleigh NC
38 Yrs Experience
Licensed in CT, DC, NC, NY
Benjamin N Cardoza School of Law

Immigration expert with over 30 years’ experience focused on start-up companies H-1, L-1, E, O-1 visas. PERM and extraordinary ability immigrant visas. Complex family immigration cases and waivers. I also assist early stage comapnies in entity formation and general legal matters for start-up companies in the areas of Telehealth, Technology and International Trade.

Haroldo M. on ContractsCounsel
View Haroldo
5.0 (1)
Member Since:
January 8, 2024

Haroldo M.

Free Consultation
Miami, Florida
16 Yrs Experience
Licensed in LA
Loyola New Orleans College Of Law

A seasoned attorney dedicated to navigating complex legal issues and devising strategic solutions for my clients.

Zenaida R. on ContractsCounsel
View Zenaida
Member Since:
January 3, 2024

Zenaida R.

Associate Attorney
Free Consultation
Miami, Florida
1 Yr Experience
Licensed in FL
St. Thomas University

I proudly hold an active membership with The Florida Bar, I successfully passed the Florida Bar examination in September 2023. My journey into the legal realm began over 5 years ago with dedicated service as a law clerk, where I provided indispensable support at previous law firms. I have distinguished legal expertise in the realm of transational matters. I am highly experienced in entity formations, commercial transactions, mergers & acquisitions, corporate governance & compliance, and business immigration services. I have prepared many independent contractor agreements, employment agreements, purchase and sale agreements, EB-1 and 2 visas, to name a few. I am an adept learner, professional, and committed to high quality legal work.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Stock Option Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,522 reviews
See All Employment Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Stock Option Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,522 reviews

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city