Employee stock option explained to kids

Employee stock options are a type of compensation that allows employees to purchase stock in the company they work for. This type of compensation can be extremely beneficial for employees, as it allows them to share in the success of the company. However, there are also some risks associated with employee stock options, and it is important to understand these before making any decisions. Employee stock options are typically offered to executives and other key employees as a way to attract and retain talent. The most common type of employee stock option is the incentive stock option (ISO), which is a type of option that is granted at a reduced price. ISOs are subject to special tax rules, which can make them more advantageous for employees than other types of options. There are two main types of employee stock options: non-qualified stock options (NQSOs) and incentive stock options (ISOs). NQSOs are the more common type of option, and they can be granted to any type of employee. ISOs, on the other hand, are typically only offered to key employees and executives. One of the main benefits of employee stock options is that they can provide a way for employees to share in the success of the company. If the company does well, the value of the stock will increase, and employees will be able to sell their shares for a profit. This can be a great way to earn extra income, and it can also help employees feel more invested in the company. However, there are also some risks associated with employee stock options. If the company does not do well, the value of the stock will decrease, and employees may end up losing money. Additionally, employee stock options typically have an expiration date, so employees must be careful to sell their shares before this date. If they do not, they may end up forfeiting their options. Employee stock options can be a great way for employees to share in the success of the company. However, it is important to understand the risks before making any decisions.