Qualified Stock Options

Qualified Stock Options: A Great Incentive For Employees

Qualified stock options are a vitally important way for companies to offer incentives to quality personnel, to try to get them to join the organization. The word “qualified” refers to the fact that there are tax breaks attached to this investment, namely that any gains are taxed at a lower rate than the standard ordinary income rate. This means that there is a great incentive for the employee to hold the options until the price begins to rise above the level set by the option when it is created. Although the economic downturn has fundamentally created a situation where employers have the pick of a great many potential employees desperate for work, there are pockets of employment where the dynamic still operates in the opposite way. Top class executives, with the skill to add dollars to a company's bottom line, are still in great demand.

Although these people will choose a job largely on where they think they can go and make a difference, there is no doubt that financial incentives are also very important. It is easy to understand why corporations like to offer this type of benefit to their potential employees. Although there is potentially great value here, there is nothing to pay out at the start when the company is formed. If the company does not do as well as everyone is hoping, there will be no high bills or debts left to pay. Because the stock option price will remain higher than the prevailing market price, there will never be any incentive to take up the option, which will just expire with no value. The stock options are a good thing from the point of view of the executive also, because they offer the potential for a long lasting reward which can grow over time.

The tax break is only one of the many considerations involved in deciding which offer to take. If you believe in your company, and there is no reason why you should not if you have chosen to work there, then you should be excited about the possibility of owning part of it, even if it is only a small part. With qualified stock options, it is very tempting to cash in on the rewards as soon as they become available, especially with the tax break. Doing so, however, could prove to be an expensive mistake if you believe the company is capable of expanding still further. There are more options available to you than most will ever consider, so be sure to take advice and weigh up your options before you commit. If you like tracking your investments and have the will to learn, you can even sell a part of your options holding and invest in other securities, building a diverse portfolio from your base of qualified stock options.

 

 

 

 

 

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• Stock Options Basics
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