stock option plan – n : an executive and employee compensation mechanism whereby executives and other key employees are granted stock options. Stock option plans allow companies to align the interests of executives and shareholders by rewarding both for increases in valuation (stock price). Companies are legally required to file or register their stock option plans with the state in which they are incorporated or organized, and that plan governs all incentive stock options (ISOs) and non-qualified stock options (NSOs) issued by the company; the plan typically stipulates the rules and parameters (e.g., vesting schedules) governing options granted under the plan.

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Adapted from "The CompanyCrafters Entrepreneur's Dictionary"
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