File size: 2,797 Bytes
1c37325 | 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 | WEBVTT
00:00.000 --> 00:07.000
A very important feature of a stock option is its exercise price.
00:07.000 --> 00:12.360
It remains fixed and the earlier you receive the stock options, the lower the exercise
00:12.360 --> 00:15.000
price usually is.
00:15.000 --> 00:20.160
In your growth journey, you should strive to grant options at a lower rather than a higher
00:20.160 --> 00:22.360
exercise price.
00:22.360 --> 00:26.840
That sounds obvious, but let us look at that in some detail.
00:26.840 --> 00:32.360
If you have a high potential employee who has not yet demonstrated performance, you
00:32.360 --> 00:35.240
could consider two grant methods.
00:35.240 --> 00:42.040
One for example, grant them 100 fresh options each year after that year's performance,
00:42.040 --> 00:46.600
which then go on to West over the next 4 or 5 years.
00:46.600 --> 00:53.080
Two, instead of granting each year, bunch them up and grant them say 200 or 250 options
00:53.080 --> 00:54.560
today.
00:54.560 --> 01:00.880
Add them West over the next 4 or 5 years, but link the Westing to performance.
01:00.880 --> 01:03.680
The second alternative has some advantages.
01:03.680 --> 01:10.440
One, it comes at a lower exercise price, while the yearly fresh grants would be at an increasing
01:10.440 --> 01:13.160
exercise price usually.
01:13.160 --> 01:19.600
A cheaper option is inherently more valuable than a more expensive one, simply because
01:19.600 --> 01:22.760
the probability of profit is much higher.
01:22.760 --> 01:29.080
It is more likely for a lower share price to increase compared to a higher one usually.
01:29.080 --> 01:37.360
Two, by bunching up the grant upfront, you have provided the complete visibility of wealth
01:37.360 --> 01:41.360
to that employee right away today.
01:41.360 --> 01:45.560
100 options granted yearly do not do that very effectively.
01:45.560 --> 01:52.040
While you have granted a large number of options today, you have also ensured yourself against
01:52.080 --> 01:57.560
a bad performance by linking the Westing to performance and perhaps even by Westing
01:57.560 --> 02:04.600
them back-ended like 10%, 20%, 30%, 40% over the next 4 years.
02:04.600 --> 02:10.440
Doing this helps the company because an employee with complete wealth visibility might be more
02:10.440 --> 02:17.720
motivated and it also usually takes fewer number of options to deliver the same intended benefit
02:17.800 --> 02:24.120
than what you would need if you were to grant fresh options each year to that employee.
02:24.120 --> 02:30.280
But when you grant options that Western performance, you need to be extra careful about designing
02:30.280 --> 02:32.480
your performance conditions.
02:32.480 --> 02:33.680
Let us look at that next.
|