Employee share options (ESOs) refer to various alternative ways of compensating workers, clients, or suppliers. A particular company offers the employees, contractors, or suppliers’ shares in the firm as a mode of compensation. In most instances, they are given to executives and employees in senior management and supervisory positions. The idea is that these people are so important to the firm and should be rewarded for their efforts. It also makes sense that if these people know they will get stock options as part of their compensation package, they would be more inclined to work hard.
The other main types of employee share options are known as ‘Venture Capital’ or ‘private equity offerings. In these types of transactions, the buyer of the shares of stock typically does not need to compensate the seller of the shares of stock. Instead, what happens is that the buyer of the shares of stock purchases a number of these shares at one price, and then the sellers sell their own shares of stock to the buyers.