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I am looking for a new job and I received an offer for which I will initially get 10000 pounds of stock options.

It is difficult to understand what their real value is and I cannot ask too many questions.

Just to start evaluating the offer, I would like to know what is usually the percentage of the value of the company that is distributed as stock options. Is it usually close to 10%, 50% or 100%?

I am also wondering if, in the hypothesis that the company is sold in about one year, it is possible that the value of the options will be, for example, 4 or 5 times what I will pay? Given that the company more or less knows its value, why should it give options with a price so low?

  • Do the options give you the right to buy stock at a certain price, or do you get however many shares 10K will get you at current market prices? – D Stanley Nov 10 '17 at 14:26
  • The options give me the right to buy at a certain price. – Ward Clark Nov 11 '17 at 10:40
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    "I cannot ask too many questions." - That's an awful way to start any relationship. You are being offered something of value, as part of a business transaction. Why do you feel you can't ask what it's worth? And more important, what it might be worth X years hence. – JTP - Apologise to Monica Nov 11 '17 at 12:39
  • Companies use a variety of sophisticated techniques to make the exercise price of the options as low as they can possibly get away with. The lower the exercise price, the fewer shares they need to give you to accomplish the same level of incentivization. This same number also affects what employees have to pay the IRS, so again a lower number helps employees and thus provides them more incentive to stay employees. – David Schwartz Nov 11 '17 at 17:56
  • More information is needed for a complete answer. Is this a publicly traded company? What is the strike price compared to the market price (if there is one)? Do the options expire at some point? – D Stanley Nov 11 '17 at 21:06
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What you will probably get is an option to buy, for £10,000, £10,000 worth of stock. If the stock price on the day your option is granted is £2.50, then that's 4,000 shares. Companies rarely grant discounted options, as there are tax disincentives.

The benefit of the stock option is that when you exercise it, you still only pay £10,000, no matter what the 4,000 shares are now worth. This is supposed to be an incentive for you to work harder to increase the value of the company.

You should also check the vesting schedule. You will typically not be able to exercise all your options for some years, although some portion of it may vest each year.

  • I used the wrong word because I am not an expert. By "discounted" I only meant what you said: that I can pay a price that is lower than the value of the stock when the transaction happens. I was interested to understand if it is reasonable to expect that a company offers you stock options with an x price and, even though today they know that they are going to sell the company in one year and they know its performance, the price they ask you to pay could be 4-5 times lower than the future value of the stock that they can easily predict. – Ward Clark Nov 10 '17 at 10:09

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