Stock Options

Stock Options are a form of equity compensation that gives employees the right to buy company shares at a set price for a defined period. This glossary entry explains what stock options are and how HR uses them.

What are Stock Options?

Stock options grant employees the option to purchase company stock at a predetermined exercise price. They are commonly used to align employee incentives with company performance and to attract or retain talent.

How do they work?

Options are granted with a vesting schedule, exercise price, and expiry date. After vesting, an employee can exercise options to buy shares at the exercise price. Financial outcomes depend on the market price at exercise and any tax rules that apply.

Practical use in HR and recruitment

HR teams use stock options in compensation packages, retention programs, and executive rewards. Payroll and finance must track grants, exercises, and tax reporting.

• Using options to recruit founders and senior hires
• Designing vesting to improve retention after a merger
• Coordinating with payroll for tax withholding at exercise

Clear option policies and communication reduce legal and payroll risk.

Related HR concepts

Related terms include RSUs, ESOPs, equity compensation, vesting, exercise price, and grant agreements.