Backdating employee stock options
A grant is the issuance of an award, such as a stock option, to key employees under a stock plan.A stock option grants the employee the right to purchase a certain number of shares of the company's stock at a predetermined price. There is usually a waiting period before an employee can exercise these stock options.A grant is offered to employees only after they have worked at the company for a set period of time.Purchasing a stock option is also known as exercising.From the employee's standpoint, a stock option grant is an opportunity to purchase stock in the company he or she works for at a lower price.Typically, the grant price is set as the market price at the time the grant is offered.For more details on stock option grants and tips on determining the best time to exercise, read CNN Money's "Employee stock option plans." From the employer's standpoint, the idea behind stock option grants is to give employees the incentive to align their interests with that of the stockholders.
For a breakdown on exactly what determines a non-qualified stock option and how it is taxed, read .
A qualified stock option grant, also known as an incentive stock option (ISO), is eligible for a special tax treatment: you don't have to pay income tax when you purchase an option, and you instead pay capital gains tax when you sell the option, or taxes on the profits made from the stock option.