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An evergreen option is an incentive offered by many companies to employees as a way of annually accumulating company stock shares.
How It Works/Example:
A company’s evergreen option offers employees the opportunity to accumulate partial ownership in the company where they work. Shares are allocated to employees each year based on a percentage of outstanding shares of common stock.
Why It Matters:
Evergreen options are used by companies to motivate employees and encourage loyalty by offering employees the opportunity to share in the growth and success of a company through partial ownership. However, should employees choose to accept an evergreen option as their incentive package of choice, they take on all valuation risks associated with owning common stock in the company. An additional risk is that the shares may be affected by shareholder actions without the employees’ knowledge or consent.
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Capital appreciation (also called a capital gain) is an increase in the value of an investment. It is the difference between the purchase price (the basis) and the sale price of an asset. Thus the formula for capital appreciation is:
Sale Price - Purchase Price = Capital Appreciation
Note that this formula assumes the sale price is higher than the purchase price. If an investor sells an asset for less than he or she paid, this is called a capital loss.
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