New Ways to Illustrate the Leverage Effect of ESOs

Explaining the "leverage effect" of employee stock options to recipients can be difficult, but it is an important concept because it facilitates motivation and retention.  In a nutshell, leverage occurs because stock options have a fixed exercise price.  Consequently, a stock price change of 10% will yield a higher or lower percentage change in value.  Restricted stock grants and shares of stock do not have leverage.

The following article on the StockOpter University shows a couple of examples that can be provided to stock plan participants to help them understand the concept of leverage as it applies to their company stock and options.  The objective of this information is to help employees make informed decisions.

http://blog.stockopter.com/2012/08/a-new-look-at-the-leverage-in-employee-stock-options/