Why do companies give options?

Question

I was recently given a fairly odd options offer at my company, in addition to an existing offer. The new offer is weird because it does not start vesting for ~6yrs (then vests fully over a few years... over 9yrs is a really, really long time!).Anyway, I'm not given a lot of information:- No idea what the total shares or % ownership these (or my existing) would give me- No idea of the company's valuation- No idea if these options are given in lieu of other compensation (my assumption is yes)This got me thinking... what is the point of companies offering options? What are they really trying to accomplish?To me it just seems like they are trying to get out of paying their employees, but this is such a negative perspective I thought I'd ask the question here and get your thoughts.

jobs_throwaway · Accepted Answer

1) Because most employees just see "1000 shares" or whatever and don't know to ask anything else. Most of the time, if you ask for the # of shares and most recent valuation, they'll give you that (big red flag if they won't).2) In theory, offering shares better aligns incentives between the company and employees. If you are given a decent chunk of the equity (an extreme rarity), you have an incentive to make the company as valuable as possible.

jschveibinz · Answer

Unless you are a founder, awarding stock to employees has two ramifications in the US:
1. It is considered compensation, so it is taxable. Employees don’t like digging into savings to pay taxes.
2. It is difficult to value and is dilutive to investors at a time they don’t want to be diluted.
Options are typically tied to an event, like an acquisition.
Usually, the investors and founders have leverage in the deal which in turn pays for the options.
Good luck!

mytailorisrich · Answer

It sounds like the company is private. If so, a very relevant question to ask is the plan and timescale to reach IPO.But in any case, 6 years before the first batch vests... you should discount the current value of these options to 0.