Evaluating Stock Options in a Job Offer
As job seekers begin to review the salaries, benefits, and other various components of job offers, it can be beneficial to take stock options into consideration as well. It is important to know how to confidently assess the value of stock options and include the prospects of long-term reward in the comparison of job offers. The following outlines a few tips for evaluating stock options in job offers.
Types of Options
The first step when evaluating stock options is to understand the types of options that are available. While each company uses different forms of stock options, there are usually two main types:
- Non-Qualified Stock Options – These are typically the stock options offered to employees of the company. They are not particualry tax-advantaged for the employee and must be taxed as ordinary income when exercised
- Incentive Stock Options – These are more benficial to employees form a tax perspective and are typically offered at a discounted price
When exercising stock options, it is important to understand the ramifications of the cost, payouts, and taxes associated with the option. Before signing an agreement, it is important to know the specific cost of purchasing the option and when any associated taxes must be paid.
When evaluating which stock options is better, it may also be valuable to compare the potential returns of each option. Consider the potential of the stock, the tax status of the option and long-term value when weighing the overall value of stock options.
Seeking Professional Help
If the details of stock options are overwhelming, it can be beneficial to connect with a financial planner or tax consultant for additional insight. An expert in the field may be able to review the details of the offer and provide clarity to the stock option component of the job offer.
When assessing a job offer, it is important to consider stock options as part of the overall analysis. Being aware of the various types of options, understanding the costs associated with options, and being prepared to seek professional financial and tax advice if necessary can ensure that the perks of the job offer are more completely explored.