Can someone please explain executive stock options to me?

Question

I've been noticing that recently executives have been cashing in stock options with an exercise price of $10, $20, $30, etc. I am wondering how this is possible, since the company's stock was NEVER that low. Other people (non-executives) in my company were granted stock options, but they matched the current market price at the time of the grant. This leaves most of them holding "underwater" options, and at the same time, execs are cashing in with very low exercise prices. So my question is, how is this possible? Thanks!!

Answer 1

There are two kinds of employee stock options -- Qualified Stock Options and NQSO -- Nonqualified stock options.

Qualified stock options are part of a plan. There are restrictions on how many options can be given to an employee and on the strike price. In particular, the strike price has to be close to the fair market value at the time the stock is issued. These options can only be granted to employees.

NQSO on the other hand, contain no such rule. You can grant stock options to anyone (e.g., board members, strategic partners, managers). They don't have the same kinds of restrictions in terms of how many options can be granted, and they can have strike prices well below the fair market value. Most options granted to senior managers are NQSOs.

The disadvantage is that when they are exercised taxes are owed on the difference betwen the fair market value of the stock and the strike price.

Answer 2

properly malica is on the surprising song. Senior executives are oftentimes provided inventory determination promises consistent with annum, not basically the day they are employed. determination promises are frequently tied to the marketplace of the enterprise's inventory fee on the date that they are issued, spoke of as at-the-money thoughts. decrease back-courting occurs after a enterprise's inventory has recently favored, and refers back to the practice of issuing thoughts on a given date, yet documenting the options to an till now date whilst the inventory fee grew to become into decrease so as that the grantee of the options can found out a immediately benefit on the alternative supply and the provider does not incur the unfavourable financial reporting therapy linked with granting in-the-money thoughts.