Options are the public secret of Silicon Valley's success.
Cobbled together over the years by the engineers who founded the great companies of the Valley, notably David Packard, and their investors, options are the most successful variant of communism yet devised.
In Silicon Valley, options are sweat equity, what you earn when your company does not have the cash to pay you a full salary. They turn into your share of the value of the company that you created.
Options are engineers paying with their sweat for an ownership share in the company. Engineers earning a return on their sweat equity comparable to the return their investors earn on their cash.
A company makes options available to its people by adopting an option plan. That is where we come in.
The key decision is what percentage of the Company's stock goes into the Option Plan, which is another way of asking what percentage of the Company goes to employees relative to the founders and the investors. Needless to say, it is a decision which requires good communication with all involved.
Option Plans have been evolving recently into Equity Incentive Plans, which include restricted stock, phantom stock and stock appreciation rights as well as options. All different kinds of sweat equity.