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.