A stock option plan is a type of incentive offered to employees by the company they work for by which the employees get a right to buy the company’s stocks at a price the stock was trading at when the option was approved. Later if the price of the stock goes up, the employee can still buy the stock at the pre-determined lower price and thereby he can make a profit. The employee can choose not to exercise his stock options if the prices don’t go up. By offering a stock option plan, the company tries to get the employees interested in the performance of the company as they are going to gain if the organization does well.
Although the employee can buy the shares at the previously fixed price if the price increases, he can sell it at the market price and keep the profits. This is a privilege which cannot be traded or transferred to others.
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Sample Stock Option Plan Agreement
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