Self-explanatory. I’m clueless. I just want to know how much money I’m going to be getting every month in total for my job.
In: Economics
Most of the other replies here seem to be missing a key part. Typically when a company offers stock options, it is a pre-IPO company. That means that the stock is only worth whatever VC investors think it’s worth and are mostly worthless to you UNLESS the company either goes public or gets acquired. If the company goes public, you would then have the “option” (hence the name) to buy the stock at a very low price (whatever the strike price is, i.e., whatever the stock was worth when the options were granted, typically less than a dollar) and now you own this stock and could trade it on the open market. If the company is acquired, then your options would typically be converted into actual shares of stock in the acquiring company. Say for example, your company was acquired for $50M by Microsoft, and there was 25M shares of stock in your company and you had 10000 options, then Microsoft is paying $2 per stock, so you would get $20000 worth of Microsoft stock (or just be paid out $20k by Microsoft depending on if it was an all cash deal or a stock acquisition).
Your options will also typically have a vesting schedule where your options don’t vest (actually become available to you) until you have been with the company for a certain period of time. For example, 25% of your options vest on your one year anniversary, 25% on your second anniversary, etc. The vesting schedule varies by company, but it effectively means if you leave for example before a year, you get nothing, if you leave in your second year, you get 25% of them, and you would typically need to stay 4 years to get all of them.
All of this is simplified to keep it ELI5, but you get the gist.
captainXdaithi was right that these companies offer this to you (typically in lieu of paying you more but not always) as a way of giving you “partial ownership” in the company so you feel both more attached to the company and so that you will work harder since you are now incentivized yourself to make the company grow and to stay with the company for longer instead of going elsewhere.
Just remember though that the vast majority of stock options end up being worthless, very few companies IPO, and while some are acquired, your company either needs to be massively successful or have massive potential for that to happen.
Latest Answers