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| A very important feature of a stock option is its exercise price. |
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| It remains fixed and the earlier you receive the stock options, the lower the exercise |
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| price usually is. |
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| In your growth journey, you should strive to grant options at a lower rather than a higher |
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| exercise price. |
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| That sounds obvious, but let us look at that in some detail. |
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| If you have a high potential employee who has not yet demonstrated performance, you |
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| could consider two grant methods. |
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| One for example, grant them 100 fresh options each year after that year's performance, |
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| which then go on to West over the next 4 or 5 years. |
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| Two, instead of granting each year, bunch them up and grant them say 200 or 250 options |
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| today. |
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| Add them West over the next 4 or 5 years, but link the Westing to performance. |
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| The second alternative has some advantages. |
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| One, it comes at a lower exercise price, while the yearly fresh grants would be at an increasing |
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| exercise price usually. |
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| A cheaper option is inherently more valuable than a more expensive one, simply because |
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| the probability of profit is much higher. |
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| It is more likely for a lower share price to increase compared to a higher one usually. |
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| Two, by bunching up the grant upfront, you have provided the complete visibility of wealth |
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| to that employee right away today. |
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| 100 options granted yearly do not do that very effectively. |
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| While you have granted a large number of options today, you have also ensured yourself against |
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| a bad performance by linking the Westing to performance and perhaps even by Westing |
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| them back-ended like 10%, 20%, 30%, 40% over the next 4 years. |
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| Doing this helps the company because an employee with complete wealth visibility might be more |
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| motivated and it also usually takes fewer number of options to deliver the same intended benefit |
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| than what you would need if you were to grant fresh options each year to that employee. |
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| But when you grant options that Western performance, you need to be extra careful about designing |
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| your performance conditions. |
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| Let us look at that next. |
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