Stock
Ahhh... the dreams of getting rich with piles of company stock - every techie has them! As a semiconductor designer, one of the largest components of your total pay will probably involve some kind of company stock. It might be an employee stock purchase plan/program (ESP or ESPP), stock options, or even stock grants. No matter what combination of these you have, watching your personal net worth fluctuate thousands (or tens of thousands) of dollars per day can be quite exciting and nerve-wracking at the same time.
Employee Stock Purchase Program: You'll find that nearly every employer who offers stock will have an ESPP. It's a good way for them to provide you with a perceived benefit, but it also benefits the company in that you are heavily invested in seeing the company do well.
All ESPP plans vary but as an example using common numbers, here's what you might expect: Many companies have a one or two year buy periods. During these periods, your purchase price will be locked-in at a certain value. Throughout the the buy period, you have the opportunity to deduct a certain amount of money from your paycheck to be placed into an account, which is eventually used to buy the stock. Usually, every year or six months, you will participate in a purchase where your accumulated money is withdrawn and used to purchase however many shares of the company stock you can afford at the lock-in price. Most companies also offer a discount on the share price, anywhere from 5 to 20%, which is the main benefit of participating in the program. So, the day the purchase happens, you have made at least 5-20% of the money you accumulated directly from the price discount, and you may have made even more if the stock has appreciated above the locked-in price.
The ESPP is not a source of "free money" as you must deduct from your paychecks to buy the shares, but over several years, it's pretty common for people to hold tens of thousands of shares in their company. If those shares move $5 in a day and an employee has 10,000 shares, that's a $50,000 swing! It's very exciting if the stock went up, and can be depressing when it goes down. However, that is the stock market and you should not participate in any stock program unless you understand the risks of stock investing.
Stock Options: Options are the vehicles of dreams. During the "dot com bubble" it seems that everyone you could talk to was getting thousands of stock options every quarter and became millionaires almost overnight. Today, the reality of stock options is quite a bit different.
Stock options are typically given-out in large blocks when you are hired and periodically throughout your employment. You might be offered 10,000 options with your job offer letter, vesting over four years. This means that every year, 2,500 shares will "mature" and become elidgeable for exercise. At the time of the option grant, a price is set for the shares (typically the closing price on the day they are granted). This price per share is what you will be able to buy 2,500 shares for each year for the next four years. So, you can imagine that if your option price is $10 and four years from now, the stock is at $25 per share, you can make $150,000 (minus taxes, of course) profit when you exercise the options. Wow! However, if the option price is $10 and the stock is now $5, there's no reason you'd want to pay double for the same shares you can buy on the open market, right? In that case, the options are considered "underwater" and are only worth the paper they are written on. Therefore, like anything stock-related, options have risks and potential rewards and cannot be considered guaranteed income by any stretch of the imagination.
For many start-up companies, which are not publicly traded yet, you will probably get options when you're hired, but those only become valuable if the company goes public or sells-out and you have the correct class of shares to participate in the buy-out. These pre-IPO (Initial Public Offering) start-up grants are usually massive and if you are lucky enough to choose a company that can make it to the IPO, you're almost guaranteed a multi-million dollar jackpot. However, most start-ups fail, so keep that in mind also!
Stock options are falling out of favor at some companies due to the accounting burden, so you might be presented with stock grants instead.
Stock Grants: Of all the things listed here, stock grants are the simplest. With a grant, you are simply given shares. Often, your total grant will be split into chunks and given over time, much like the vest on stock options, as an incentive for you to remain at the company. Stock grants will generally be lower in quantity than options due to the fact that you are not paying a base price like you do with options.
As with anything involving stocks, you should understand what you are buying or getting to avoid losing large sums of money. Also, cashing-in on large blocks of any stock can have significant tax implications which you should get professional advice about.