Employee option pool

Reserve shares for employee incentives and model the fully diluted ownership effect before approving a financing or grant plan.

Quick answer

An employee option pool is a reserve of shares available for grants under employee or management incentive arrangements. Pool size, issued and unissued awards, vesting, exercise price, approvals and whether a financing requires a pre-closing increase affect fully diluted ownership and dilution.

Use the worked example

Meaning and transaction use

An SEC-filed agreement defines an employee option pool as specified incentive shares and lapsed incentive shares available for issue to managers and employees under approved plans. [S1]

An SEC-filed offering shows a fully diluted share count that includes issued and unissued shares reserved for an employee option pool. [S2]

Proposed control method: maintain a grant-level cap table and reconcile authorised, reserved, granted, vested, exercised, cancelled and available shares.

Worked example

Illustrative cap table only. Assume 8.0 million existing fully diluted shares before a new pool, and the company adds 1.0 million pool shares.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Existing fully diluted shares	Given	8.0m
New pool shares	Given	1.0m
Post-pool fully diluted shares	8.0 + 1.0	9.0m
Pool percentage	1.0 / 9.0	11.1%

The illustrative pool represents 11.1% of post-pool fully diluted shares.

Proposed transaction review process

Set hiring needs

Map roles, timing, grant ranges and expected refresh grants.

Reconcile the cap table

Confirm authorised, reserved, granted and available shares.

Model dilution

Calculate ownership before and after the pool and financing.

Approve and govern

Document board, shareholder, plan and grant approvals.

Evidence checklist

Plan

Governing documents, eligibility, limits and approvals.

Cap table

Issued shares, options, warrants, convertibles and reserves.

Grants

Recipient, amount, exercise price, vesting and status.

Hiring plan

Roles, timing, grant assumptions and available pool.

Decision framework

Situation	Proposed action
The pool is undersized	Model the required increase and ownership effect.
The pool is oversized	Align the reserve with evidenced hiring needs.
Financing terms change the denominator	Reconcile pre-money and post-money dilution.
Cancelled options return to the pool	Apply the plan documents and update availability.

Common errors to check

Ignoring ungranted pool dilution.
Using an undefined fully diluted denominator.
Failing to reconcile cancellations and exercises.
Sizing the pool without a hiring plan.

Model the option-pool dilution

Bring the cap table, incentive plan and hiring plan to an option-pool review. Reconcile available shares and fully diluted ownership.

Discuss the transaction

Primary references and editorial scope

SEC filing: Employee option-pool agreement
Example definition of incentive shares available to managers and employees under approved plans. Reference checked 17 September 2026.
SEC filing: Option pool in fully diluted shares
Example issued and unissued employee-option-pool shares included in a fully diluted share count. Reference checked 17 September 2026.

Editorial qualification

General transaction education using public United States filings. Figures are hypothetical. Governing corporate, plan, tax, employment and securities documents determine actual rights and dilution.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.