To get the idea, think about the case of an option now trading at the money, in line with the current market price.

How To Understand Stock Options In Your Job Offer |

While exercising that option would result in no profit, it would still have value to someone holding it, depending on the lifespan of the option. Indeed, this program actually offers a way to profit from out-of-the-money options, thought the further out of the money, the less value to a potential buyer. Google believes making the options transferable will provide a way to show new employees - who get options with a strike price at the current market - that their options actually have considerable value, something they could not quite see with a traditional options plan.

We're trying to make equity compensation as fair as we can. In fact, Google employees will have the ability to go on the Web at any time and see the theoretical value of their options, by looking at current bid prices for options with comparable strike prices. They'll be able to see the theoretical value not only of options that that have vested, but also those options that have not vested. You will not be able to transfer unvested options. The program will be available during market hours in any non-blackout period -the company bars employee trading near earnings announcements or the release of other material information.

Trading would be possible about five months out of the year, according to Google. Pricing information will be available even in period in which trading would not be permitted. Once an employee leaves Google, eligibility to transfer their options is terminated. Under the plan, once an institution buys an employee option, it immediately changes from a year option to a two-year option.

Unless the remaining life of the option is less than two years. That feature is designed as a penalty for the option holders, forcing them to choose between reaping the full time-value of the option by simply keeping it, or to reap a smaller, surer gain by selling it sooner.

Institutions that buy options in the TSO program would not be able to re-sell them; options with less than six months remaining won't be eligible for transfer. Google expects they would generally be held until the exercise date. The program will have an impact on Google's accountring for employee stock options. For starters, with the initiation of the program, the company will need to recalculate the costs of previously issues options to reflect current market prices; that will result in an additional charge as yet not disclosed.

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Also, the company will incure a greater cost for new options, largely due to the longer-expected life of the options that figures into the Black-Scholes options valuation calculation. Options with a longer life are worth more; the company now assumes about a four-year life for its options. With the TSO plan, the company will increase the expected life to six years; that increases the accounting hit Google needs to take for any options issued. At last count, the company has about 6.

Google adds the full two years to the options expected life in the Black-Scholes model in part because you would mathematically conclude that employees will be better off financially selling their options rather than exercising and selling the stock; that is obvious for at the money and out of the money options; but it is true as well for in the money options.

Alphabet Inc. (GOOG)

Actually, it might not be true for options deep in the money or deep out of the money with a short remaining life span, where the time element has little value. Google did not quantify the earnings impact of the program, but said it would provide some detail on that question in the first quarter. Dave Sobota, senior corporate counsel at Google, says the company has had "extensive discussions with the SEC" on the new program, and at this point can proceed "with no further approvals required.

The company said the new program, which has been under discussion since early , is not in response to any accounting changes, the recent stock-option backdating scandal or any other external driver. The idea apprently cropped up from a question co-founder Sergey Brin asked at a meeting to discuss whether the company should move from an employee stock option program or switch to a plan using restricted stock units.

They now use both. If it works, you can imagine employees at many companies requesting similar treatment; whether companies will be willing to suffer the additional options expense that the plan requires remains to be seen.

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Google thinks this will make its options issuance "more efficient," which suggests that over time they could provide fewer options, since the individual options effectively have more value - although the company says the intent of the program is not to reduce stock options issuance. Neither do they plan to stop issuing restricted stock units.

As for whether Morgan Stanley might extend the program to shares of other companies, Google said to ask Morgan Stanley So the answer is probably, not yet, but maybe eventually. Class C shares of stock are those typically held by employees without voting rates. They may be inexpensive to purchase at first but will have higher fees in the long-term. You would have A cliff refers to when the first portion of your option grant vests.

During this time period, you must stay at the company in order for any portion to vest. Google provides the RSUs in a brokerage account. We discuss additional information on your tax impacts below. You must stay employed to receive your vested shares. Your shares are worth the current price.

If the price happens to drop the day before your vesting date, you get the lower value. You can keep the stock as long as you want. If you do accumulate them at a lower value, you can keep the stock and wait for it to increase. Google operates on a 4-year vesting schedule. You must be at Google for at least 12 months before the first vesting date. However, this may or may not cover your full tax liability.