Definition:
Employee stock options are granted to specific employees of a company. Employee stock options carry the right, but not an obligation, to buy a certain amount of shares in the company at a predetermined price. Employees typically must wait a specified vesting period before being allowed to exercise the option.
The goal of employee stock options is to align the incentives between the employees and shareholders of a company. Shareholders want to see the stock appreciate, so rewarding employees when the stock goes up ensures, in theory, that everyone is striving for the same goals.
Also Known As: stock options, ESOs, options, employee stock ownership plans, stock grants