Stock Options |
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A stock option is the right (or obligation) to buy or sell stock in the future at a fixed price. Stock options are often part of the package of executive compensation offered to key executives. Some companies extend stock options to all (or nearly all) of their employees. This was especially true during the dot-com boom of the mid- to late- 1990s, in which the major compensation of many employees was in the increase in value of the stock options they held, rather than their wages or salary. Some employees at dot-com companies became millionaires on their stock options. This is still a major method of compensation for CEO's.
The theory behind granting stock options to executives and employees of a corporation is that, since their financial fortunes are tied to the stock price of the company, they will be motivated to increase the value of the stock over time.
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