Essentially, a Stock Option Award Letter, also known as a Letter for Grant of Option, is a letter given by the company to an employee. It states that it is granting him, her, or they, options in the company, according to the terms in the Employee Stock Option Plan (ESOP).
What is in a Stock Option Award Letter?
Date of Grant. The date that the stock option was awarded to the employee.
Exercise Price. The exercise price that can be used to purchase the option. This should have been set in the Employee Stock Option Plan.
Vesting Schedule. The vesting schedule specifies when the shares can be exercised or if any performance criteria need to be met.
Payment Method. The payment method stipulates how the employee should remit payment when they exercise the stock option.
When Should You Use a Stock Option Award Letter?
Chiefly, a stock option award is a great incentive for employees to help the company achieve its goals. Importantly, always send a formal letter to underscore the importance of the employee’s contribution.
What is an Incentive Stock Option Agreement?
An incentive stock option (ISO) is a corporate benefit that is given to highly-valued employees who are on the higher end of the management. ISO stock or ISOs are also known as statutory or qualified stock options. ISOs give employees the right to purchase shares of company stock at a discounted price. It can also have an added benefit of possible tax reductions on the profit. They are meant to help and encourage the retention of employees for the long term. ISO’s have a fixed offering period of 10 years. After this, the option expires.
An ISO agreement is used to grant this kind of stock to the employees. The agreement outlines which employee receives, how many options. Also, employees under this agreement must exercise their options within 10 years of receiving them.
Are Stock Awards the same as Stock Options?
There is a difference between stock awards and stock options. The right to buy a company’s stock at some point in the future is represented by Stock options. Here, employees get the money only if the price of the stock rises above the price when the shares were allotted and sold.
On the other hand, Stock grants, are grants of shares, with some limitations on when the shares can be sold.
Conclusion
To sum up, a Stock Option Award is a great way to incentivize employees. A Zegal template will guide you through the creation process with minimal effort and maximum protection.
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Along with this document, make sure you see these other templates in our library:
- Shareholder Agreement
- Option Agreement
- Employee Option Repurchase Agreement
- Share Appreciation Rights Plan
- Share Option Plan
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