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Employee stock option

Employee stock option Definition

Employee Stock Options are stock options for the company's own stock that are often offered to upper-level employees as part of the executive compensation package, especially by American business corporations. It is also sometimes done for non-executive employees, especially in the technology sector, in order to give all emplyees an incentive to help the company become more profitable. Because stock prices are related to corporate earning, the employees have an incentive to increase earnings, in order to make the price of the company's stock rise, and therefore increase the value of the employee's stock options. This increase in earnings can either be done in reality, or possibly by the use of creative accounting.

Employee stock options differ from the options that are traded on exchanges as securities primarily in the time frame under which they can be excercised. Employee stock options typically allow an excercise timeframe of up to ten years, whereas the longest time to expiry for exchange traded options is typically 2 years. Thus employee stock options are similar to warrants





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