It’s actually not that pedantic, it’s like calling JavaScript “Java”. For stock options to be profitable the stock has go up. Stock grants are simply cash in a currency that may be more or less valuable than originally granted.
Employees get both options and grants, depending on their position and so on. And stock does go up. It's Microsoft. Otherwise you can... just not use the option. The purpose is to encourage employees to help the company and raise the stock. In theory at least.
Thanks for explaining it but I know how it works better than most here, hence the comment.
If you get $100K in stock options at a certain price and the price doubles, you make $100K. If it stays the same, you make nothing. If you leave, you have a certain period of time to exercise or you lose your options.
If you get $100K in stock and the prices doubles you make $200K. If it stays the same, you make $100K. If you leave the day it vests, you keep it.
They’re not at all similar except in the fact that they’re securities. Using them interchangeably is a great sign to ignore any financial commentary from that person. I’m only here because I see this mistake in every single thread that has anything to do with compensation. Engineers need to get financial education.
You understand other people can read and learn, right?
>And stock does go up. It's Microsoft. Otherwise you can... just not use the option.
And lose the equity portion of your compensation, unlike stock grants. You don’t seem to get the nuance but you are so desperately trying to dismiss my point.
What nuance do I not get, buddy, you're literally quoting me saying it. Yes, if the stock doesn't go up, you get nothing. I said this myself. This is an incentive for employees to work for increasing the value of the company.
What is it you think I'm missing here at all? You're pissed employees get nothing if stock doesn't go up? You think I'm missing that? No, THAT'S THE WHOLE POINT OF OPTIONS.
I know almost nothing about this, so as far as I understand stock options are like stock except they start from "0" and you can only cash out the positive difference?
Like you can only earn from the company's future growth.
A (call) stock option is the option to buy X shares at Y price by Z date (a put option is the same thing but to sell instead). You can go on any brokerage and buy a call option on Apple, for example, which would be the option (but not the obligation) to buy 100 shares of Apple at some strike price, say $200, by some date, let's say August 31, 2023. This privilege of having this option will cost you: let's say $2,000 (the real price is calculated via complex formulas). When August 31 comes around, you can either buy or not buy, but your $2,000 is gone either way. If Apple goes up to $300 on August 31, that option will now be worth $8,000 (($300 spot price - $200 strike price) * 100 shares - the original $2,000 it cost you to buy this option). If Apple went to anything below $220 ($220 - $200 * 100 - original $2,000), it wouldn't make sense to exercise your option since you would lose money. This is the basics of it.
It's generally not interesting for an employee to receive options because if the company doesn't perform well by the time your exercise date comes around or you leave the company then you get little or nothing. You would rather get stock grants which are shares that have value. If you get some shares when Apple is $200 and it goes to $100, you still have half the value of your shares.
Generally, in public companies (with extreme exceptions), options are issued to executives whose compensation is dependent on how much they can increase the company's share price. If they fail, they get little to nothing. If they succeed, they make a lot.
Thanks for asking. Let me know if you have any questions, I'd be happy to explain more.
