Stock options allow employees and other service-providers to share in the growth of a company's value without risking their money until they exercise the options to buy the shares. In many instances the gain on stock options is substantially greater than one's annual compensation. In addition, cash bonuses and most other forms of compensation are taxable when you receive them. Stock options, on the other hand, are not taxed at grant; rather, you pay taxes only when you exercise the options and/or sell the underlying stock. In some cases stock options provide favorable long-term capital gains tax treatment.

For various reasons, many companies are granting restricted stock instead of or along with stock options. A related FAQ provides an overview of the trends.