Reload feature definition
/What is a Reload Feature?
A reload feature automatically grants additional stock options whenever an option holder exercises previously granted options using an entity's shares to satisfy the exercise price. New stock options granted under this feature have the same expiry date as the old options. The exercise price of the reloaded stock options is set at the market price of the underlying shares on the date when the reload feature is triggered.
Characteristics of the Reload Feature
Below are the key characteristics of the reload feature for stock options:
Issuance of new options. When employees exercise existing stock options, they may be granted new options equal to or proportional to the number of shares purchased. The newly issued options are usually subject to the terms of the original plan, such as vesting schedules and expiration periods.
Use of owned shares for exercise. Employees often use previously owned shares to pay the exercise price or taxes associated with the exercise. The reload feature rewards this action by replenishing the stock options.
Encourages long-term engagement. The reload feature is designed to motivate employees to hold onto shares rather than sell them immediately, fostering a sense of ownership in the company. It provides an ongoing incentive for employees to stay with the organization.
Similar terms. Reload options typically have a similar expiration date and exercise price to the original options they replace. In some cases, the new options may have a different strike price based on the market price at the time of issuance.
Dilution aspect. Reload features can lead to additional share dilution, as they result in the issuance of more stock options over time.
By including a reload feature, companies aim to provide recurring incentives while encouraging loyalty and long-term commitment from employees.
Accounting for a Reload Feature
If a stock option contains a reload feature, do not include it in the estimate of the fair value of options granted. Instead, it is to be accounted for as a new option grant.