At the time of the exercise of the options, the employee is paid a bonus that funds some or all of his income tax. The answer lies in the tax benefits available to the company. The company will in fact recoup much of its cost through an income-tax deduction. In fact, the company receives cash at that moment from the employee for the exercise price of the options. The income tax it saves can be provided to the employee.
Many companies view NQOs as an almost ideal compensation mechanism.
Because the amount of the compensation is directly tied to the value of the company's stock, the options provide the employee with a direct incentive to increase the value of the company's stock. Moreover, even when tied in with a cash-bonus program, tax savings mean such options do not reduce the company's available cash. The information contained herein should not be construed as legal advice. The information contained herein is provided for general information purposes only and should not be acted upon without specific legal advice based on particular circumstances. Click on the logo to go there now.