What is the difference between stock grants and stock options?

Updated July 7, 2020: Stock grants vs. stock options are different tools employers use to motivate and reward their employees. Those who receive stock grants can’t sell their shares until a certain period of time, known as the vesting period. Shares that are received by using stock options can be resold at any time.

Are stock grants better than options?

Stock grants have the benefit of being equitable property; that is, they have some intrinsic value. During times of stock market volatility, stock options can be valued less than the employee cost, making them worthless. Stock grants always retain at least some value because the employee did not purchase them outright.

What is employee stock grant?

What is a Stock Grant? Stock grants are equipped to keep a company’s employees working for a specific set period. A stock grant is also known as an employee grant. An example of this would be a company granting a new employee 50 shares of shock that are vested over a period of two years.

What does it mean when a company grants stock options?

From the employee’s standpoint, a stock option grant is an opportunity to purchase stock in the company for which they work. Typically, the grant price is set as the market price at the time the grant is offered. In this way, grants are similar to call options, but without an expiration date.

Why do companies grant stock options?

Stock options are a benefit often associated with startup companies, which may issue them in order to reward early employees when and if the company goes public. They are awarded by some fast-growing companies as an incentive for employees to work towards growing the value of the company’s shares.

What are the advantages and disadvantages of using stock options to reward employees?

The advantage of incentive stock options is the favorable tax treatment for employees (generally employees’ favorite variety of equity compensation). The disadvantages are the statutory requirements (quite constrictive) and the lack of any deduction for the Company.

What does it mean to grant stock options?

From the employee’s standpoint, a stock option grant is an opportunity to purchase stock in the company for which they work. If the market price of the stock goes up in value, the grant price is still the same and the employee is purchasing a stock at a lower price than market value when exercising the option.

What does grant of options mean?

An option grant is a right to acquire a set number of shares of stock of a company at a set price.