Investing for Beginners , investing

Employee stock options are options that are given to employees as part of motivation package and gives an opportunity for employees to acquire shares of the company in the future at a lower price. In their meaning employee stock option is very similar to typical call option, the main difference is that normally employee stock option cannot be traded and can be exercised only as long as employee works at the company. 

Employee stock option is great motivation tool to encourage the employees, because the value of the option depends on stock price (normally shares of such company are listed on stock exchange) and the stock price depends on company’s results, so if employee can influence it, he will try to work harder. However, employee is not getting any stocks for free, he have to invest in the company his own capital, but usually at the lower price than in the market, and that price is predetermined at the option.