Stock options are a popular way of making employees feel like they have ownership in a business. This idea that employees can get rich if their company succeeds has become part of the culture in many industries. But is it true?
Choose Your Boat Carefully
When a company gives you stock options, you get a piece of paper saying you have the option to purchase a certain number of shares after you’re worked at the company for a year or more. Senior employees get more options, and junior workers get fewer.
In theory, if your company succeeds, these options could be worth millions. But that doesn’t happen most of the time.
Some people view stock options like lottery tickets: probably worthless, but potentially worth a lot if you’re really lucky. These people try to work for as many companies as possible – like buying lots of lottery tickets.
Others think skill is more important than luck, so try to pick one great company, and then stick with it for years. If they happen to join the right company (e.g. Apple, Amazon, Google…), they’ll certainly make lots of money.
Still others see stock options as a pyramid scheme: a deck that’s stacked against most employees in favor of a few senior executives, company founders and investors, who are the most likely to make a windfall.
Who’s right? Maybe everyone.
Think of stock options like a fishing expedition. There’s an opportunity cost of choosing a boat (company) to go out with (i.e. you’re not choosing some other boat). A few boats consistently find lots of fish, due to luck or skill, and everyone on those boat will catch a lot. Other boats with bad captains or bad luck or bad weather will come back empty handed.
But even on the winners, a few people on each boat may have advantages over everyone else. Like handheld sonar showing where the fish are. Or better gear, making it easier for them to snag that big trophy prize. Or better bait and tackle.
Like fishing, working at a company with stock options can be exciting, fun and rewarding, or draining and disappointing.
But just remember: employees don’t get to choose the fishing spot, just the boat. So just as with stock options, to hit it big (by landing a really big one) you have to be both smart and lucky.