Options Trading Tutorial

Employee Stock Option Question...?

Employee stock options are intended to serve as reward and motivation. What is the consequence if the option granted is out of the money? What should a company do about out-of-the-money stock options?

Public Comments

1. The obvious financial consequence is that the option is worthless to the employee, making them unhappy about them not panning out. I don't think that is the thrust of your question, however. If you mean how should it go into the financial statements, that is a question you should be asking the company accountants. If you are talking about ethically or in a retention/making employees happy way, the obvious thing would be to throw in some cash, but if the options are out of the money, I doubt the company is in a position to do such.
2. Are you talking about Stock Appreciation Rights? Some companies award those and out-of-the-money options as incentives for employees to stay at the company in hopes of stock prices appreciating in the future.