However, the grant might not be provided at a lower price than market value, as non-qualified options are.A grant is the issuance of an award, such as a stock option, to key employees under a stock plan.
A qualified stock option grant, also known as an incentive stock option (ISO), is eligible for a special tax treatment: you don't have to pay income tax when you purchase an option, and you instead pay capital gains tax when you sell the option, or taxes on the profits made from the stock option.
Since the grant is provided at a specific price, which is usually lower than the market value for the company's stock, employees who choose to take advantage of this opportunity pay income tax on the difference between these two prices upon purchase.
It's important to note that employees are not subject to taxes when the option becomes available to them; rather, they only pay taxes when they purchase a stock option.
For more details on stock option grants and tips on determining the best time to exercise, read CNN Money's "Employee stock option plans." From the employer's standpoint, the idea behind stock option grants is to give employees the incentive to align their interests with that of the stockholders.
In the past, however, some stock option grants have been set at such low levels that executives ended up enriching themselves, not the shareholders.
From the employee's standpoint, a stock option grant is an opportunity to purchase stock in the company he or she works for at a lower price.
Typically, the grant price is set as the market price at the time the grant is offered.
A grant is offered to employees only after they have worked at the company for a set period of time.
Purchasing a stock option is also known as exercising.