Public Company Stock Agreements

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Commonly Asked Questions about Public Company Stock Agreements

What is the difference between RSU and stock options?

Stock options provide employees with the right to purchase company shares at a predetermined price (exercise price) after a vesting period. Until exercised, employees do not have actual ownership of the shares. In contrast, RSUs represent a promise to grant employees a specific number of shares after vesting.

What happens to stock options if the company never goes public?

There are a few things that could happen to employees stock options if the company they work for doesnt go public or doesnt raise enough money in an initial public offering (IPO). They could lose their vested shares on exit, or the company may cancel the options and give them back their original grant price.

How do options work when a company goes public?

You are granted your options when you start working at your company. You start vesting and you exercise your vested options because you have the money to do so and you believe the value will go up. You sell after the IPO and make money on the increase in share price.

What are public company stock ownership guidelines?

What are stock ownership guidelines? A stock ownership guideline is a policy created by the compensation or governance committee which establishes the level of stock ownership that is expected for the executives or outside directors of a company.

Do employees pay for stock options?

Notably, employee stock options are not actual shares. They are an opportunity for employees to exercise (purchase) a specified amount of company shares at an agreed-upon price (the strike price) with the hope that they will sell their purchased shares for a higher price than they paid for.

What is the difference between stock options and ESOP?

The key difference between an ESOP and a direct issue of shares, is that under a direct issue of shares, the employee receives stocks upfront. Under an ESOP, the employee is only granted options, which can be converted into stocks once they have satisfied their vesting conditions.

What is the difference between RSU and PSU?

Whereas RSUs will be granted at a steady, predictable rate, PSUs come with a higher degree of risk and potential reward. PSUs are preferred by shareholders, as performance typically aligns with share price growth.

What are stock options for public companies?

Companies often offer stock options as part of your compensation package so you can share in the companys success. Stock options arent actual shares of stocktheyre the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price.