by 
The Curious Bag
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"Stock options" represent the opportunity to buy shares of a company's stock at a specified price at a certain point in the future. The higher the share price when the purchase window opens, the more profitable the option.
Importance
Stock options give workers a direct stake in their company's financial performance beyond a regular paycheck.
Mechanism
Options are issued with a date they can be exercised--often several years in the future--and a "strike price" at which shares can be purchased.
Issuers
In established companies, options help line up workers' interests with those of shareholders. In start-ups, they provide a powerful incentive to work to get the company to profitability
Recipients
Though stock options are most commonly associated with top executives, lower-level workers can and do receive options.
Drawbacks
Options can encourage executives and others to act for short-term gain--boosting the stock price just long enough to exercise the option--at the expense of long-term financial health of the company. And if the share price falls below the strike price when the purchase window opens, the options become worthless.
Source:
Human Resources Internet Guide: Incentive Plans: Stock Options
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