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Investing Specialists

Must-Knows About Employee Stock Options

How to balance the tax and investment considerations.

As technology stocks ascended in the second half of the 1990s, employee stock options were the dominant form of equity compensation, with companies distributing them to rank-and-file employees as well as executives. But thanks to the combination of the dotcom bust and 2006 changes in the accounting rules that required companies to count stock options as an expense, other forms of equity compensation supplanted stock options as the employee equity compensation form of choice. Restricted stock units and performance shares--whereby executives receive a batch of stock from their companies after meeting a performance target--grew in popularity.

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