What is stock options?

The meaning of stock option, which could be translated into Spanish as 'stock options', is a way that companies have to remunerate employees, but especially managers. It basically consists of offering them actions of the company in which they work at a price established in advance and that are generally below the market price.

What is the purpose of stock options?

What is sought with the stock option is to align the interests of the shareholders with those of the managers and employees, since the moment the share price rises, they will all get benefits. Through this route, many managers can pocket large amounts of money in the event that the shares undergo significant appreciation.

The stock option concept is associated above all with medium and long-term remuneration plans, thus managing to incentivize and retain managers. It is also often the case that the workers of a company have access to stock options as a series of objectives are achieved by the company.

Not all companies that distribute stock options are listed on the Stock market. It is enough to establish a valuation system for the shares so that the holder of the right can exercise his options. In fact, it is one of the most used forms of variable remuneration in start-up, which offer a significant incentive without affecting the liquidity of the companies. In this way they can attract talent and compete with other large entities despite not being able to offer important salaries. In the event that the startup's growth is confirmed, in the long term it will be able to benefit from the benefits or a possible sale.

This method of remuneration had its peak in the United States in the 90s, when entities provided managers with the possibility of buying a package of company shares at a previously established price.

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