Whilemuchofthisdiscussionhascenteredonthegrantingof
optionsbypubliclytradedfirms,itisworthnotingthatthe
useofequityoptionsiswidespreadinprivatebusinessesas
well.TheNationalCenterforEmployeeOwnershipsurveyed
275 venture-capital-backed private businesses in the
technology and telecommunications businesses. Of these
firms, 77 percentprovidedoptionstoallemployeeswhile 23
percentprovidedthemtoonlyselectemployees.Ifwecouple
this behavior with the fact that venture capital investors
themselves receiveoptionson equity(oftenin theform of
convertible bondsand preferred stock), manyyoung firms
alreadyhaveasubstantialoptionoverhangatthetimeoftheir
initial public offerings.
Characteristics of Option Grants
Firmsthat useoptionsas employeecompensationtypically
issuethemeachyear,withthestrikepricesetequalto the
prevailing stock price; employee options are usually