What benefit do stock options offer employees?

Stock options provide employees with the opportunity to purchase company stock at a predetermined price, known as the strike price, at a future date. This means that if the stock's market price increases above the strike price, employees can profit by exercising their stock options and buying shares at the lower strike rate, then potentially selling them at the current higher market price. This aligns employees' interests with the company's performance, as employees benefit when the company does well and its stock price increases. By offering stock options, companies can incentivize employees to contribute to the overall success of the business since their personal financial gain is directly tied to the company's growth and profitability.

Other options do not capture the essence of stock options. For example, guaranteed profit sharing implies a fixed return, which does not apply to stock options since potential profits depend on stock price fluctuations. A fixed cash payment now does not relate to stock options, as these options are not immediate cash payments but a right to purchase stock later. Fixed ownership in the company suggests outright ownership stakes, whereas stock options represent a right to purchase shares rather than an ownership claim until they are exercised.