Stock Options
Employee Stock Options are a form of equity compensation that give employees the right–but not the obligation–to purchase a specified number of company shares at a fixed price (called the strike price) after meeting certain conditions, such as vesting.
The strike price is usually set at the Fair Market Value (FMV) of the company at the time the option is granted, as determined by a third-party valuation firm (e.g., through a 409A valuation in the U.S.).
ESOs are typically given with a vesting schedule–typically 4 years with a 1-year cliff (meaning the first 25% vests after one year, and the rest vests monthly or quarterly thereafter). They can be exercised after they vest and within a fixed post-termination window (often 90 days after leaving the company).