Why don’t companies offer a strike price of $0.01 on options?

Question

There are plenty of companies without liquidity where I&rsquo;d be happy to accept options as compensation&hellip; Except with strike prices as high as they are, exercising them becomes painful.My current job would require over $100k to exercise my options. That&rsquo;s a massive hit to my base pay, effectively cutting my salary by like 15%. In my salary negotiation I basically had to value those options at $0 because of this.Why don&rsquo;t companies just set the strike price at $0.01? It doesn&rsquo;t cost them anything does it? That would make options way more appealing, and allow them to decrease base pay and thereby save cash.Is there some practical reason why the strike price has to be so high?

nostrademons · Accepted Answer

There are unfavorable tax implications for both the company and the employee if the strike price is different from the current fair market value of the company's stock.

bombcar · Answer

Because if the stock is valued at $10, and the strike price is $10 or above, the option is currently worthless.
If the stock is valued at $10 and the strike price is $0.01, the option is currently worth $9.99.
That's a big difference.
Issuing an option with a low strike price would be better handled by issuing shares (which some companies do).

s1artibartfast · Answer

>Why don&rsquo;t companies just set the strike price at $0.01?In your example, it would cost them 100k, or likely more.Every option you exercise costs the company the value of the stock. If it costs you 100k, and is worth 1M, the company is loosing 900k.If the strike price was zero, they would be losing even more.

treeface9000 · Answer

You can always do a "cashless exercise"... assuming your options are actually worth something. Essentially it auto sells enough shares to cover the cost to exercise and leaves you with the rest.