What types of incentive plans are typically given to motivate employees of Silicon Valley companies?
Answer: (b), incentive stock options
An "incentive stock option" or "ISO" is a stock option that has met certain requirements specified by the Internal Revenue Code entitling the optionee to favorable tax treatment. An ISO is free from tax at the date of grant and the date of exercise (when a non-qualified option would become taxable). If two holding period tests are met (two years between grant date and sale date and one year between the exercise date and the sale date), the profit on the option qualifies as a long term capital gain rather than ordinary income taxation.
