Employee Stock Options

Definition

Financial instruments granted to employees as part of their compensation, giving the right — but not the obligation — to purchase company shares at a predetermined exercise price after a vesting period. Employee stock options align employee incentives with shareholder value creation and are a critical component of equity-based compensation strategy in growth companies and PE-backed businesses. Their valuation for accounting purposes under IFRS 2 requires option-pricing models such as Black-Scholes.