| A very important feature of a stock option is its exercise price. | |
| It remains fixed and the earlier you receive the stock options, the lower the exercise | |
| price usually is. | |
| In your growth journey, you should strive to grant options at a lower rather than a higher | |
| exercise price. | |
| That sounds obvious, but let us look at that in some detail. | |
| If you have a high potential employee who has not yet demonstrated performance, you | |
| could consider two grant methods. | |
| One for example, grant them 100 fresh options each year after that year's performance, | |
| which then go on to West over the next 4 or 5 years. | |
| Two, instead of granting each year, bunch them up and grant them say 200 or 250 options | |
| today. | |
| Add them West over the next 4 or 5 years, but link the Westing to performance. | |
| The second alternative has some advantages. | |
| One, it comes at a lower exercise price, while the yearly fresh grants would be at an increasing | |
| exercise price usually. | |
| A cheaper option is inherently more valuable than a more expensive one, simply because | |
| the probability of profit is much higher. | |
| It is more likely for a lower share price to increase compared to a higher one usually. | |
| Two, by bunching up the grant upfront, you have provided the complete visibility of wealth | |
| to that employee right away today. | |
| 100 options granted yearly do not do that very effectively. | |
| While you have granted a large number of options today, you have also ensured yourself against | |
| a bad performance by linking the Westing to performance and perhaps even by Westing | |
| them back-ended like 10%, 20%, 30%, 40% over the next 4 years. | |
| Doing this helps the company because an employee with complete wealth visibility might be more | |
| motivated and it also usually takes fewer number of options to deliver the same intended benefit | |
| than what you would need if you were to grant fresh options each year to that employee. | |
| But when you grant options that Western performance, you need to be extra careful about designing | |
| your performance conditions. | |
| Let us look at that next. | |