ident in all the underlying tax rules and how they may effect future taxation. For many obvious reasons, stock options are appealing to employees. Most obvious is the opportunity for employees to gain large amounts of equity by buying the stock at the fixed market price and selling it in the market at its current higher price. Many employees are able to triple or even quadruple their normal earnings by exercising stock options then selling them. As well as earning extra from selling the stock, employees are also earning more this way than if they just took their wages and walked because through use of their stock they are able to defer income taxes. The profit attained from the stock is conveniently not taxed until it is sold on the open market. Another benefit to the employee is simply being a stockholder. Now the employee is more than a worker bee in the company; he is a team player too. They are more included in the company because they now own part of it. Seems like the employee is able to have his cake and eat it too. The only real downfall for the employee is exercising his stock at the wrong time and losing money.From the other end of the spectrum things are not quite as perfect. Stock options are an easy way for ownership to be weakened. When an employee exercises his stock options, the company has to either issue new shares or go out on the open market and purchase shares to compensate accordingly. If new shares are issued, then your ownership is diluted. Another downfall from the companys standpoint is a net cash outflow. If the company purchases shares on the open market, then the company, which only receives the exercise price from the employee, has to pay market price for the shares it purchases. Along with the disadvantages, there are many more advantages for the company when it comes to stock options. They are a huge motivational tool for their employees, and long before the employees are even hired, stoc...
