What is an ‘Employee Stock Option – ESO ??
An employee stock option that grants specified employees of a company the right to buy a certain amount of company shares at a predetermined price for a specific period. An employee stock option differs slightly from an exchange-traded option, because it is not traded between investors on an exchange.
What is ‘Vesting’ ??
Vesting is a legal term that means to give or earn a right to a present or future payment, asset or benefit.
Vesting and Startup Companies
Startup companies often offer grants of common stock or access to an employee stock option plan to employees, service providers/vendors, board members or other parties as part of their compensation. To encourage loyalty among employees and also keep them engaged and focused on the company’s success, such grants or options are usually subject to a vesting period during which they cannot be sold. A common vesting period is three to five years.