Evergreen Option
What it is:
An evergreen option is an employee incentive offered by many companies as a way for the employee to accumulate company shares.
How it works (Example):
Evergreen options offers employees the opportunity to accumulate ownership in the company where they work.
Shares are allocated to employees each year based on a set percentage of outstanding shares of common stock. Most evergreen option plans don't require shareholder approval.
Evergreen options are simply regular call options awarded to employees as additional compensation. They only have value if the price of the stock exceeds the strike price of the option.
To learn more, see the article Enjoying the Benefits of Employee Stock Options.
Why it Matters:
Evergreen options are used by companies to motivate employees and encourage loyalty by offering them 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 part of an incentive package, they take on all valuation risks associated with owning common stock in the company.
