Option Pool

In finance, the term option pool denotes a portion of a company’s shares which is segregated and used to reward employees in the event of good company performance.

A company may grant an employee a right to a portion of its option pool. If the company becomes a public company by listing on a stock exchange through an initial public offering (IPO), the employee can convert their portion of the option pool to shares in the company's stock.

Options pools are primarily used by new companies who aim to become public companies. Companies use option pools as a means of attracting and motivating employees to build the company to the point that it is able to go public. If a company with an option pool is able to list on an exchange, eligible employees can convert their shares in the option pool to shares in the company’s stock. In this way, key employees are rewarded for their roles in the company’s growth.

See also: Stock option

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