Stock options: what is it, benefits and how to apply this type of compensation?

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on reddit
Share on stumbleupon
Stock options: what is it, benefits and how to apply this type of compensation?

Table of Contents

Do you want to know all the benefits of what is stock options? Keep reading the article and ask all your questions. To begin with, it is necessary to know that stock options is a kind of Long Term Incentive (ILP).

Want to better understand how incentive plans work in practice and how they can help your business? Find out below.

What is stock options?

Stock options, or Stock Option Plan, is a type of variable compensation.

Companies that adopt the concept of stock options offer their employees the stock purchase, as a remuneration model.

Usually, the sale of shares is made with lower values ​​compared to those practiced in the market. In other words, the company benefits the employee making it easy to buy shares internally.

With the sale of the company's shares to the employees themselves, the objective is to improve the working relationship, in addition to bringing the employee closer to the company's development.

Therefore, whoever chooses to adopt the stock options wants to involve and engage employees in the company's growth, as well as improve its performance in the market.

stock options
Variable remuneration is to benefit employees based on company results

How does stock options work?

The stock option plan, or Stock Option Plan, is most popular in the United States. In the UK, this method is still being perfected by multinationals and, more recently, by innovative startups.

Generally, companies do not offer this type of corporate benefit to any employee.

It is a type of incentive for the employee, which is aimed at managers and other employees who hold senior positions.

As mentioned at the beginning of the text, employees acquire company shares, usually at a price below the market. It is very important to know that the remuneration conditions will depend on the rules defined by each company.

The main point of stock options is that when the company grows, the benefits are also directed to employees who participate in the stock plan.

The concept of variable remuneration

Whenever companies create a mechanism to reward employees for their results we are talking about variable compensation.

On a daily basis, this amount that supplements the employee's fixed income has other names. It can be called a bonus or a bonus. However, there are different ways to apply and name the remunerations, one of them is stock options, which benefit from shares.

Employee engagement

The more the corporation's stock prices rise, the more the company and stock option recipients earn. Therefore, a company that chooses to follow this path will certainly see improvement in the results and performance of its professionals.

This is because the stock options it has a direct impact on the employee's motivation to improve their performance and also to remain in the company.

Therefore, for stock options to be successful, the company and the employee must enter into an agreement. Some important points must be defined and documented, such as:

  • how long the employee will be able to benefit;
  • the conditions for the sale of shares.

stock options

Incentive plans such as stock options generally focus on professionals with high positions

Better long term results

The stock options aim to offer additional remuneration as part of a project to retain talent in the company. That's because it's getting more difficult to hire qualified and specialized labor in some sectors.

Therefore, the model's success depends on good employee performance indicators and the company's situation in the market. Overall, the trend is improve long-term results.

Stock options in the UK

In the UK, the type of stock option remuneration began to be applied in the 1990s.

This concept came through multinationals and gradually gained ground in the corporate environment.

Now, it is possible to identify the employee stock-buying model in different sectors.

Large companies like the Grupo Pão de Açúcar, Natura, Hering and Azul already stated that they work with variable remuneration such as stock options.

O Bank of the UK it also adopted the model and recently informed that 98,000 BB employees are company shareholders.

In recent years, stock options have also gained traction as a variable compensation option within startups.

Stock options: advantages and disadvantages

Discover some advantages and disadvantages of stock options and find out if this can be an efficient solution for your company!

Benefits

From the point of view of the company's owners, the main advantage of stock options is the improvement of business results, as well as establishing a closer relationship with shareholder employees.

With this incentive strategy, it's much easier to keep the employees who dominate the company's operation. In addition to improving internal engagement for better results.

With the employee owning the shares, he improves his performance in the professional performance evaluation, because he knows that the return from his work will reach him.

In possession of the shares, the employee sees himself as one of the company's owners and focuses on:

  • motivate teams;
  • improve internal results.

Disadvantages

Despite the positive points, it is also necessary to talk about the disadvantages. In the case of stock options, the big disadvantage is the lack of specific legislation for this type of compensation plan. Therefore, the company that decides to apply the model must use the Corporate Law.

In this way, the company can facilitate the acquisition of shares by employees. The only problem is that the law does not define the rules for taxation, which must be set internally.

On the employee's side, the downside is that company shares are at risk of devaluation. Therefore, it is necessary to be prepared for positive or negative results.

Other solutions for your company

These were our tips on what stock options are and how to use them to reward and engage employees. Did you like it? Check out more content in this post: Incentive programs: a guide to motivate your employees.

Are you looking for an efficient Human Resources platform for your company? Meet HR Consultant UK, the best HR software in the UK!

With our system you will:

  • reduce the time in your employee termination admission processes;
  • have a clearer and safer process;
  • avoid penalties, fines or any risk related to legal issues and company information management.

HR Consultant UK is the only one that delivers an amazing experience and still solves the real problem the customer has. Talk to an expert and find out how to reduce 30% of your HR costs.

We hope you understand how stock options work and how it can help your business. If you want to better understand the concept of variable compensation, count on Mereo!

This content was developed by Mereo, an integrated management platform that has the right tools to align people's results with those of the organization. Keep reading other important articles on our blog and discover other solutions to improve your company's performance.

Conclusion

HR Consultant UK can help if you have any questions about Stock options: what is it, benefits and how to apply this type of compensation?
. Our HR consultant in London can assist you if you live in London. Suppose you live further afield thats not an issue! Visit our HR Consultants Near Me page to find the best consultancy nearest to you.
See you next time!

admin

admin

Leave a Replay

Why HR Consultants UK!

HR Consultant UK Offers HR advice for local businesses in the UK. Our HR Consultants Near Me Page will help you get in contact with local HR Consultancy.

Alternatively, view our list of cities covered by HR experts.  Its time to get all your HR issues solved! 

Enjoy the Blog!

Recent Posts

Follow Us

Sign up for our Newsletter

Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit

Where do you need an HR Consultant?

United Kingdom or
USA?!

Get local HR advice in the UK and USA?

So that we can get you through to the right HR Consultant, please let us know what your location is.

Book HR Consultants
Get Quotes From Local HR Consultants

Talk with a Local HR Consultant in the United Kingdom Or United States.