Gary Poster, with essential assists from Galyn Norwood, Phiroon Phihakendr, Jose Quijada, Pavandeep Kalra. Here are the basic things you need to know about stock-option plans. Most options are granted on publicly traded stock, but it is possible for privately-held companies to design similar plans using their own pricing methods. Usually the strike price is equal to the stock's market value at the time the option is granted, but not always. It can be lower or higher than that, depending on the type of option.
Employees profit if they can sell their stock for more than they paid at exercise.
Most stock options have an exercise period of 10 years. With some option grants, all shares vest after just one year. Most options are fully vested after the third or fourth year, according to a recent survey by consultants Watson Wyatt Worldwide. Investors generally frown upon this practice, however, which may be why 85 percent of companies surveyed by consultants Towers Perrin after last fall's market swoon said they were not considering repricing, even though almost all had options that were then underwater. Setting priorities 2.