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Stock Options
Incentive stock options (ISOs) & Non-qualified stock options
(NQSOs):
In U.S.A, the basic difference between the two lies in the
tax burden, which is ultimately borne by the employees. There is no regular tax
due on an ISO until the option is actually transferred (sold) by the employee
for a price higher than the price at which the option was granted. Employee pays
tax on capital gains.
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On the other hand, the tax incidence in case of NQSOs is
greater. When the option is exercised, the employee has to pay normal
taxes on the difference between the option price and the prevailing market
price. Secondly, when such shares / stock are sold, there is an incidence
of tax on capital gains. |
Phantom Stock:
A phantom stock is a bonus that rewards employees based on
the value of the company's stock and the dividend performance of the stock.
Discount Stock Option:
A stock option with an exercise price, which is less than the
fair market value as on the sale of the grant.
Indexed Stock Option:
A stock option with an exercise price equal to the fair
market value at grant but the price adjusts upward or downward depending on an
index, such as in relation to the market, industry, or peer group performance or
some other measure.
Performance Accelerated Stock Option:
A stock option that has a fair market value exercise price
and a service-based vesting schedule (usually longer than traditional options
which are generally of a tenure of 10 years) , but which will become exercisable
at an earlier date if the specified performance goals are achieved.
Performance Contingent Stock Option:
A stock option that has a fair market value exercise price,
but which will become exercisable only if the specified performance goals are
achieved. If such goals are not achieved the option lapses.
Purchased Stock Option:
A stock option that requires the optionees to make a down
payment (usually expressed as a percentage of the market price) within a short
period of time after grant and before the option may be exercised. Typically,
the exercise price may be set below the fair market value to reflect the amount
of the down payment. However, the down payment cannot be recovered if the option
is not exercised.
Reload / Restoration Stock Option:
A stock option that is automatically granted upon the
exercise of a previously granted stock option to the extent that the optionee
uses shares rather than cash to pay the purchase price of the original option.
Typically, the exercise price of the reload option is the fair market value on
the date of the grant and the reload option expires on the same date as the
original option.
Variable Priced Stock Option:
A stock option with an exercise price that fluctuates upward
or downward in relation to stock price performance. Also known as a “Yo-Yo Stock
Option”, it is a kind of Indexed Stock Option.
Premium Stock Option:
A stock option with an exercise price that is greater than
the fair market value on date of grant. Premium options are those, which are
issued with an exercise price, which is fixed at grant, but exceeds the fair
market value of the stock on the date of grant.
