Employee Stock Option - ESO

A stock option granted to specified employees of a company. ESOs carry the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price. An employee stock option is slightly different from a regular exchange-traded option because it is not generally traded on an exchange, and there is no put component. Furthermore, employees typically must wait a specified vesting period before being allowed to exercise the option.

The idea behind stock options is to align incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals. Critics point out, however, that there is a big difference between an option and the ownership of the underlying stock. If the stock goes down, the holder of an option would lose the opportunity for a bonus, but wouldn't feel the same pain as the owner of the stock. This is especially true with employee stock options because they are often granted without any cash outlay from the employee.

Another problem with employee stock options is the debate over how to value them and the extent to which they are an expense on the income statement. This is an ongoing issue in the U.S. and most countries in the developed world.


Investment dictionary. . 2012.

Look at other dictionaries:

  • employee stock option — ➔ option * * * employee stock option UK US noun [C] (UK employee share option) FINANCE, HR ► a special agreement that gives an employee the right to buy company stock for a particular price by a particular date, sometimes offered as a reward or… …   Financial and business terms

  • Employee stock option — An employee stock option is a call option on the common stock of a company, issued as a form of non cash compensation. Restrictions on the option (such as vesting and limited transferability) attempt to align the holder s interest with those of… …   Wikipedia

  • employee stock option — A plan whereby a corporation gives to its employees, or employees who qualify under conditions imposed by the plan, an option to purchase stock of the corporation at a certain price, often the market price on a certain day, sometimes somewhat… …   Ballentine's law dictionary

  • employee share option — ➔ option * * * employee share option UK US noun [C] UK (US employee stock option) FINANCE, HR ► a special agreement that gives an employee the right to buy company shares for a particular price by a particular date, sometimes offered as a reward… …   Financial and business terms

  • stock option — an option giving the holder, usually an officer or employee, the right to buy stock of the issuing corporation at a specific price within a stated period. [1940 45] * * * Contractual agreement entitling the holder to buy or sell a share of stock… …   Universalium

  • Stock option — An option in which the underlying is the common stock of a corporation. The New York Times Financial Glossary * * * stock option stock option ➔ option * * *    ► See Equity Options. * * * stock option UK US noun [C] STOCK MARKET, FINANCE …   Financial and business terms

  • stock option — An option whose underlying asset is the common stock of a corporation. Bloomberg Financial Dictionary * * * stock option stock option ➔ option * * *    ► See Equity Options. * * * stock option UK U …   Financial and business terms

  • stock option — ☆ stock option n. an option, as a call or put, to buy or sell stock at a specified price within a specified time, specif., such an option offered to an employee by a company to buy its stock for less than the market price …   English World dictionary

  • stock option plan — n: a form of deferred compensation that allows an employee to buy corporate stock at a set price (as the prevailing market price at the time of the contract) at any time (as when the market price has risen) during a designated number of years… …   Law dictionary

  • stock option — stock .option n [C usually plural] AmE ↑stock that a company offers to sell to an ↑employee at a price that is lower than the usual price …   Dictionary of contemporary English

  • stock option — noun 1. the right to buy or sell a stock at a specified price within a stated period • Hypernyms: ↑option • Hyponyms: ↑call option, ↑put option 2. a benefit given by a company to an employee in the form of an option to buy stock in the company at …   Useful english dictionary

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