If you think NFLX is going to increase x%, then your total comp goes up accordingly. If you took straight cash, you'd only recognize those same gains if you had purchased NFLX with it.
It's actually more than that, because the option costs less than the price of a full share. i.e. if your comp is $400k and you choose 100% stock options as your comp, that value allocation will almost certainly control more shares than if you took 400k in cash and used that to buy all NFLX shares.
If that wasn't the case then yes, there would be no reason to take options as comp because obviously (as you say) you can just buy NFLX on the stock market directly with some or all of your cash.
I realize this is still confusing, so here is a concrete example with made-up numbers.
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Netflix offers you stock options that themselves are worth $100, based on various input factors like fair market value of NFLX, interest rates, volatility, dividend yield, etc). Now let's say the strike price of those options is $900. You decided you want all of your $300k/y comp in the form of these options (which are valued each at $100), so you end up with the option to buy 3000 NFLX shares at a later date.
Netflix has a great year (partially thanks to you!) and now NFLX is trading at $1200. You exercise all of your options, buying 3000 for $900 each and immediately selling them for $1200. Net profit: $900,000.
If you'd taken the cash you'd have $300,000.
If you'd taken the cash and immediately invested all of it in NFLX (and then sold them at the same time as the first example), you'd have $400,000.
fastball|10 months ago
If that wasn't the case then yes, there would be no reason to take options as comp because obviously (as you say) you can just buy NFLX on the stock market directly with some or all of your cash.
fastball|10 months ago
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Netflix offers you stock options that themselves are worth $100, based on various input factors like fair market value of NFLX, interest rates, volatility, dividend yield, etc). Now let's say the strike price of those options is $900. You decided you want all of your $300k/y comp in the form of these options (which are valued each at $100), so you end up with the option to buy 3000 NFLX shares at a later date.
Netflix has a great year (partially thanks to you!) and now NFLX is trading at $1200. You exercise all of your options, buying 3000 for $900 each and immediately selling them for $1200. Net profit: $900,000.
If you'd taken the cash you'd have $300,000.
If you'd taken the cash and immediately invested all of it in NFLX (and then sold them at the same time as the first example), you'd have $400,000.