Employee Stock Options: Their Use and Policy Implications

Stock options are important to high-growth entrepreneurial firms and to the overall vibrancy of the economy. This policy advisory gives basic information on how stock options work, current trends in their use, impacts of their use, and their role in the recruiting and retention of personnel. In addition, the various public policies that affect stock options are summarized.Suggestions are offered that may make the use of options more effective and equitable. When used correctly, options improve productivity and ensure that companies share wealth with all workers. When misused, options can trigger a backlash against excessive executive pay, poor accounting practices, and risky management strategies.