What is the difference between a stock option and a share of restricted stock?
Stock options provide the right to buy a share of common stock at a fixed price, typically the fair market value on the date the option is granted. Outright ownership of the stock may occur only after the option is exercised. The value realized on exercise is measured by the difference between the grant date stock price and the market price of the stock when the option is exercised. For example, if the grant price is $20 per share and the market price on the date of exercise is $25 per share the employee will have $5 per share of value. Restricted stock is stock that will be owned immediately, but will be subject to forfeiture and will not be freely transferable until predetermined vesting conditions have been met. Typically, vesting depends on continued employment for a specified time period. The value realized at vesting is measured by the fair market value of the stock at that time. Unlike stock options, no purchase price is paid for restricted stock.
