My new employer offered me stock options and said they will vest over the next 4 years, what does that mean?
Answers | 1
Hi - stock options are contracts offered to employees as compensation incentives - "work hard and stay here - you will be rewarded". Briefly, a stock option gives you the right to buy a certain number of shares of the employer's stock at a certain price, for a certain time period. Vesting means that you can't buy the stock - called an "exercise" - until a certain amount of time has passed from the date you receive the options - this is the "stay here" part of the message. If you leave the company before the options vest, you will not be able to buy the stock. Also, if you leave the company after the options vest, you typically have a limited time period to buy the stock with the option. Since your question mentions a "4 year" vesting schedule, we infer that you will be able to exercise the options over the next four years. Most likely the options vest on a staggered schedule, say 1/4th of your options vest every 12 months from the date you receive the options. Here are the questions I would ask: 1) what is the vesting schedule, 2) how long do I have to buy the stock once the options vest (10 years is typical) and 3) what is the strike price - the strike price is the price you will pay for each share of stock you can buy under the option. Hope this is helpful.