Tips to Make the Most of Your Corporate Stock Option Plan

When you accept a job, it is natural to focus on the salary, but there is more to compensation than the paycheck. Employers compete for the best workers, and they do it in a number of different ways, including providing stock options to their employees.

If your company grants stock options, you could find them quite valuable, especially if the business does well and the share price increases over time. Stock options give you the ability to purchase stock at a set price, and hopefully that price will be lower than the future value of the stock.

Tips to Make the Most of Your Corporate Stock Option Plan

If this is the first time you have been granted stock options, you will probably have a lot of questions, and the human resources department is a good place to start. Even so, you may want to do some additional research on your own to maximize the value of the grant. Here are some smart tips for making the most of your stock options.

Understand How Options Are Distributed

The way in which companies distribute stock options to their employees varies widely. Some corporations distribute options equally to all their workers, while others restrict the granting of stock options to members of upper management.

Still others tie the distribution of stock options to the annual review process, with the highest number of shares going to the employees who scored the highest. No matter how your company does it, you need to know what the rules are and how you can increase the number of stock options you are granted.

Keep Tabs on Your Asset Allocation

Getting stock options is great, especially if those options are granted at no cost to you. But there is a potential downside to owning lots of stock options, especially if you also invest in the company stock.

Over time, the accumulated stock options could begin to represent a larger and larger portion of your portfolio, and that could put your finances at risk if something bad happens to the company. As an employee, you already rely on your employer for a paycheck, and being reliant on those stock options could be dangerous.

To combat this problem, keep a close watch on your overall asset allocation and the makeup of your stock market investments. If the company you work for follows a typical vesting schedule, you should have a certain percentage of shares available to trade on a yearly or semiannual basis. When those shares become available to trade, you can book your profits and reduce your reliance on the company and its fortunes.

Read the Financial Press

The of a stock option grant is tied to the fortunes of the company, and the better the business does the more money you could make. And while you cannot do much on a macroeconomic level, you can work hard, do your job well and help the company in whatever way you can.

You can also see what the experts are saying about the company you work for. Reading the financial press will give you an impartial opinion, one that can be hard to gain when you are looking at it from the inside. And while those predictions may not always be right, they can be valuable in their own way.

Understand the Tax Implications

If all goes well, the stock options you have been granted will become very valuable, allowing you to increase your compensation and reap the rewards of a job well done. But when you do exercise those stock options, the IRS will want their share.

It is important to understand the tax implications of exercising the stock options you have been granted, so check with your advisor before making your move. Be sure to check your records if you do go ahead with the transaction; some companies withhold taxes from stock option sales, while others leave reporting and paying taxes up to their workers.

Employers compete for qualified talent in many different ways, from offering attractive fringe benefits and low cost health insurance plans to providing a good work/life balance. And in some cases, businesses offer stock options, allowing their workers to participate directly in the success of their employers. If you participate in such a plan, you want to make the most of it, starting with the simple tips outlined above.