Employee Stock Options

Stock option: the opportunity to buy a stock at a set price up until some date in the future.

So what does this actually mean for an employee? Let's say you are given 100 options for the price 15 USD for 5 years. That would be worth now (if you could sell it) 1500 USD-s. Let's say in five years the stock of the company goes up 5 USD-s, so now it's 20 USD-s. Because you got the options for 15 USD, and now it's worth 20 USD-s, the company practically gives you 5 USD-s (20-15) per options, so you have 100*5 = 500 USD profit!

Vesting refers to the process by which an employee earns ownership of an asset, such as stock options, over time. In the context of employee stock options, vesting typically means that an employee gains the right to exercise (i.e., purchase) a certain number of shares of their company's stock at a set price (known as the "strike price") over a predetermined period of time, known as the "vesting period."

The vesting period is usually several years long and is intended to incentivize employees to stay with the company and contribute to its success over the long term. As the employee meets certain milestones or stays with the company for a certain length of time, they earn the right to exercise more of their stock options. Once the options have vested, the employee has the choice to exercise them, usually by paying the strike price, and can then sell the shares on the open market or hold onto them.

Employee stock options are a common form of equity compensation used by companies to attract and retain talented employees. They are typically offered to employees at all levels of the organization, from executives to rank-and-file workers. The number of options granted and the terms of the vesting schedule vary from company to company and can depend on factors such as the employee's role, tenure, and performance. The hope is that by providing employees with a financial stake in the company's success, they will be more motivated to work hard and help the company achieve its goals.