What it means
A normal stock option gives an employee the right to buy company shares at a fixed price, called the strike price. When the employee exercises (uses) the option, they must pay the strike price, either in cash or by handing back shares they already own.
A reload feature adds a bonus: if they pay with shares, they receive fresh options equal to the number of shares they handed over. The new options usually carry a strike price equal to the market price on the exercise date and expire on the same date as the original option.
This means that the employee keeps their exposure to future share price rises without putting up more cash. Companies like the arrangement because it encourages staff to hold shares and keeps their interests aligned with shareholders.
For finance teams, reload options bring complexity. They increase the number of options in circulation, which can dilute existing shareholders (reduce their percentage ownership), and they make cost estimates harder because the number of future grants depends on what employees do.
Accounting rules treat the cost of these grants in specific ways, so advisers should be consulted before introducing one. Reload features were more common in the past and have become unusual in modern pay plans, partly because of their accounting treatment and partly because investors dislike plans that are hard to predict.
Where they still appear, they tend to be limited to senior executives and subject to caps on the number of reloads. The key nuance is that the reload feature does not give extra value for free.
The employee swaps existing shares for new options, and the true benefit comes from having options at the current market price with a longer ability to benefit from further rises. Boards and remuneration committees must weigh that incentive against the cost and complexity.
In practice
Real-world examples.
Example
A technology company grants its chief executive options with a reload feature. When the share price doubles, he exercises part of his holding using shares he already owns, receives new options at the higher price, and keeps his stake in the company. The board notes that he has not sold any shares into the market.
Example
A pharmaceutical firm's remuneration committee debates whether to continue a reload feature in its plan. The finance director shows that the feature adds uncertainty to the cost of the plan and could increase the number of options by 15%. The committee decides to remove it for future grants.
Example
An investor reading a proxy statement (a document sent to shareholders before a vote) sees that a bank's senior managers hold reload options. She calculates the potential dilution under several share price scenarios and asks the board to explain the safeguards. The question helps the board cap the number of reloads.
Formula
Calculation
Shares delivered to pay the strike = Number of options x Strike price / Market price
Reload options granted = Shares delivered
Suppose an executive holds 10,000 options with a strike price of $20, and the shares now trade at $50. She exercises all the options by handing over shares she already owns. Shares delivered = 10,000 x 20 / 50 = 4,000. The exercise delivers 10,000 shares, so her net gain is 10,000 - 4,000 = 6,000 shares, and she also receives a grant of 4,000 reload options with a strike price of $50, expiring on the original option's expiry date.Case study
Seen in the real world.
Alderwood Software is an illustrative, fictional listed company that offered reload options to its top 10 managers. The aim was to encourage them to hold shares and not sell on the market after exercising.
Over three years, share price growth led to repeated exercises, and each one produced new reload options. By the end of the third year, the number of outstanding options had grown by 18% beyond what the board had originally planned.
The finance team reported the extra dilution to the remuneration committee, which introduced a cap and moved to simpler awards. The illustrative lesson was that a feature that looks neutral in a single exercise can multiply over time.
Watch out
Common mistakes.
- Assuming that a reload option gives the employee extra shares for free, when it replaces shares handed over with new options at the current price.
- Forgetting that reload grants add to the total number of options outstanding, which increases potential dilution for other shareholders.
- Ignoring tax effects, since exercising options and the later sale of shares can each create a tax charge in many jurisdictions.
Questions
People also ask.
How is a reload option different from a regular stock option?
A regular option is a one-off right to buy shares, while a reload option is a new option granted automatically when the original is exercised with shares.
What strike price does a reload option have?
It is normally set at the market price on the day the original option is exercised.
Why have reload options become less common?
Investors and boards dislike the uncertainty about the number of options granted, and accounting treatment adds further complexity.
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