Everything You Need To Know About Asking for Stock Options in a Job Offer

By Indeed Editorial Team

April 22, 2021

Stock options are a good incentive for employees to earn more money and take part in their company's finances. Stock options can involve complex variables that are important for employees to understand so that they can make an informed decision on which shares to purchase. Learning how to ask for stock options in a job offer can help you understand which are available to you and which to choose. In this article, we discuss what stock options are, the benefits of stock options and how you can ask for stock options from your employer in a job offer.

What are stock options?

A stock option occurs when a company allows their employees to buy shares of a company's stock. A strike price is the price that an employee can buy stock at. It's usually a discounted version of the cost of the stock at the time that the company hired the employee. If the employee purchases the stock at the strike price, that is referred to as exercising their options.

Related: What Are Employee Stock Options and How Do They Work?

Benefits of stock options for employees

Here are several benefits that employees may have when exercising their options:

Higher profit

Employees may have the chance of earning a high profit off of their stocks. Employees who buy company stock at the discounted price, then sell their share when the stock is higher than the price they bought it for, have the chance to make a high profit on their stock.

Added benefits

Stock options to be an additional benefit for employees, along with any other benefits they already receive from the company, like healthcare and paid time off. Employers may use this benefit to reward you for helping the company grow in value by contributing quality work.

Related: Employee Benefits: Examples of the Most Common Employee Perks

Monetary gain

Most companies allow employees to keep all money earned from stock options. Many benefits require employees to pay an out-of-pocket cost, though stock options only require employees to pay for the amount of stock they would like to purchase. If the stock increases and an employee sells their share, employers do not require employees to pay any percentage of their stock earnings to the company.

Shares increase in value

The value of stocks typically raises as a company grows, so stock options are a great resource for employees since their value increases over time. Employees may feel more motivated to stay at a company since their stocks can continue growing in value.

Tips to consider when asking for stock options

Asking for stock options in a job offer is an important part of starting a new job. Here are a few tips to consider when asking for stock options:

Consider the future

When asking for stock options, it's important to consider the future of the company. If the company seems like it's growing at a steady pace, then you may consider taking out a higher number of shares. Though, if the company seems like it's not growing, or if it even appears to be shrinking in size or financial value, you may pass on stock options. This is because a company's stock options depend on their finances, so if a company has unstable or shrinking finances, then company stocks may possibly diminish in the future.

Be clear and confident

When it comes time to asking for stock options, try to remain clear and confident so that your employer can understand you easily. Though it may be intimidating to talk to employers about topics related to salary and stocks, you can use any nerves you may feel and turn it into confidence to help put you at ease. When asking for stock options, having confidence can help you seem determined and knowledgeable.

Related: 10 Ways To Boost Your Confidence in the Workplace

Conduct your own research

While it is helpful to discuss stock options with your employer, you may also find it useful to do your own research to help you better understand stock options. Researching on your own may help you gain a deeper knowledge of various stock options, how to purchase shares and the best time to sell those shares. You can use online resources to research employee stock options, like investment and finance websites, or you can seek advice from trusted colleagues who have experience with purchasing employee stock options.

Related: Research Skills: Definition and Examples

Understand the market price

When asking about employee stock options, it's important to have a thorough understanding of the market price, which involves the most recent price an individual traded a share. Tracking a company's stock and evaluating when you expect the stock to rise can help you understand the ideal time to purchase a share.

How to ask for stock options in a job offer

Follow these steps to assist you in asking for stock options and deciding which stock options to choose:

1. Evaluate what the discount is

When considering whether you want to purchase stock with your company, it's important to research and understand the company's stock discount. Every company offers their own unique discount. You can ask your employer for information on the company's stocks, chat with coworkers that have exercised their options or use online resources to research information regarding company's stocks. Be sure to evaluate whether the stock discount is high enough for you to want to purchase shares or not.

2. Find out about the most recent appraisal

Companies typically get their stock prices appraised once or twice a year, which means they get their stocks evaluated and measured to determine their value. During stock appraisals, the prices of the shares can rise or fall depending on the outcome of the appraisal. When considering stock options, it's important to talk with your employer about their most recent appraisal to get an accurate idea of the company's stock, which may help you determine whether to purchase stocks or not.

3. Determine the type of stock options offered

There are two types of stock options that employers can offer. These can differ depending on the tax rules that apply to them. It's vital to ask your employer which type of stock option they offer so that you can plan accordingly if you decide to purchase stock. Here are the two types of stock options:

  • Qualified incentive stock options (ISOs): This type of stock option requires special tax management, and tax officials do not consider shares from this option to be standard income. You may have to pay higher taxes if you have this stock option.

  • Non-qualified stock options (NSOs): Tax officials consider money earned from these shares as standard income. The amount of money you have to pay in taxes on these stocks depends on how long you hold them before selling your shares.

4. Negotiate salary

Before considering stock options, consider first negotiating a salary with your employer. Your salary may influence which stock options you choose, since you typically use money from your own salary to purchase shares, so it's essential that employers decide your salary before you ask for stock options in a job offer. For example, an employee who earns a higher wage may feel compelled to purchase more shares.

It's also important to gauge how well your employer compensates you in your salary and how much they are willing to offer you in stock. Sometimes, employers can offset lower pay or fewer benefits with offering more a higher discount or more shares in company stock.

Related: 13 Tips To Negotiate Your Salary and Job Offer

5. Learn the company's guidelines for stock options

Companies generally have specific guidelines for employees purchasing shares of their stock. Try to understand your company's guidelines when you ask for stock options. Here are several factors to talk your employer about when asking for stock options:

  • When options expire: It's important to understand when your options expire so that you have a clear idea of when you need to make your decision.

  • The price you can purchase stock shares: Employers should inform you of the exact price you can purchase shares at, so that you can plan the number of shares to buy at the price your company is offering.

  • When you can exercise your options: Many companies require employees to wait a certain time period before they can exercise their options. Your employer should let you know the exact time you should wait before purchasing stock.

  • When the options vest: A vesting period is how long it takes for an employee to own their shares completely. Most companies have a four-year vesting period, which means that after a full year of employment, employees own a quarter of their stocks. Ask your employer what their vesting period is so that you're aware of when you fully own your shares.

6. Request your employer to write a contract

After deciding the number of shares you'd like to purchase, request your employer to write a contract that includes the shares you're purchasing, the discounted price and the vesting period regulations. Having a contract ensures that you and your employer have agreed on the stock options in your job offer, and you can reference your contract in the future, if needed.

It's also a good idea to have a written contract since it can take years before you receive a return on your investment. Contracts ensure that you can still receive your profits from the stock, even if it's years after you purchased shares.

Related Articles

What Is Overtime Pay? (Plus How It Works)