What Are Employee Share Options?

Employee Share Options are a type of compensation that is offered to employees and executives which involves them receiving equity in the company in the form of shares. The shares are not granted directly, however, rather beneficiaries are given options to buy the stock instead. Options are a type of derivative financial instrument which give the beneficiary the right to buy the stock at a given price for a specified time period.

When someone is offered these options their price reflects the situation of the company at the time. If all goes well the share price will improve so that when it comes time to exercise the options the person can buy the shares at the original price that was set and take the improvement in the share price as what is effectively a bonus. Typically ESOs cannot be traded on the open market but when they are exercised they can be sold so that the holder achieves a profit.