There are numerous variations in the design structure of option programs. Option exercise price is less than the fair market value at grant. Option price is higher than fair market value at grant. Options vest only if specific goals are obtained. Options vest earlier if certain performance goals are met.
Options are well understood and accepted by executives.
Options have no real downside risk, they do not necessarily assure that participants will be long-time owners of company stock, and they result in dilution of shareholder value. Stock grants are also commonly used in addition to or, in some cases, instead of stock options. A third of the top 50 CEOs in Washington report receiving some form of stock grant over the last three years. Under this approach, a company grants an employee a fixed number of shares, which are restricted until a certain period of continued employment is completed. Shares are actually issued but held in escrow or inscribed until restrictions lapse.