Stock Options Packages by CRI

Stock Options

A stock option gives an employee the right to buy a certain number of shares in the company at a fixed price for a certain number of years. The fixed price is called the "grant" or "strike" price and is typically the market value at the time the options are granted. Employees who have been granted stock options hope that the share price will go up and that they will be able to "cash in" by exercising (purchasing) the stock at the lower grant price and then selling the stock at the higher exercise price.

Why consider stock-based plans?

Provide a highly competitive package to attract and retain qualified employees.
Provide a variety of ways for a Company to share ownership with employees.
Enable the Company to preserve cash while offering competitive compensation.
Provide focus and motivation to longer-term corporate performance.

Three principle objectives served by stock based programs:

Attract qualified personnel.
Reward for achievement of desired performance.
Retain key employees.

Overview of Program Designs
	NQSO	ISOs	Restricted Stock	Outright Stock Grants	ESOP	ESPP
Who is Eligible?	Employees, consultants, and directors	Employees Only	Employees, consultants and directors	Employees, consultants and directors	Employees only	Employees only
Vesting	At employee discretion with Plan limits	Two years after grant and one year after exercise up to a max of 10 years	Consistent with Plan and restriction period	Consistent with Plan	Consistent with Plan	Five year limitation; 27 months after grant
Option Price	May be below FMV; accounting charge if below FMV	Must be FMV at date of grant	FMV (Note: may qualify for discount for 83(b))	FMV	FMV	May be discounted up to 15% of FMV
Qualification Requirements	None	Must meet Section 422 requirements	None, with 83(b) election	None	Must meet Sections 422 and 421 requirements	Must meet Section 423 requirements
Limitations	None	$100,000 exercisable per year; 10% shareholders subject to special limitations	Restriction period	None	Limited to 15% of compensation	No more the $25,000 of the FMV per year
Taxability	Taxable spread at exercise; Company gets corresponding deduction	None if optionee holds for ISO holding period; deduction for spread if optionee makes disqualifying disposition and report timely filed by Company	Company gets corresponding deduction	Company gets corresponding deduction	Taxable as ordinary income at pay out	None

Overview of Employee Actions
	NQSO	ISOs	Restricted Stock	Outright Stock Grants	ESOP	ESPP
Acquisition	Buys stock	Buys stock	Grant of stock	Grant of stock	Buys stock	Buys stock
Tax	Pays tax	Defers tax payment	Pays tax	Pays tax	Defers tax payment	Uses after tax money
Stock Price	May be below FMV	FMV	FMV	FMV	FMV	May discount up to 15%
Limitations	None	$100,000 exercisable per year, 10% shareholders subject to special limitations	None	None	15% of compensation	No more than $25,000 of the FMV
Level of Employees	May discriminate	May discriminate, but some restrictions	May discriminate	May discriminate	May discriminate, but some restrictions	All employees

To find out more on how Compensation Resources, Inc. can help your company with Stock Options, please contact us or call us directly to speak with our compensation consultants at 877-934-0505.