I have a question on how the $100,000 rule affects individual employees when they exercise ISO options.
I have seen the rule interpreted to mean the following, “The maximum value of the stock for which an employee can exercise of ISOs during a calendar year generally cannot exceed $100,000 (valued as of the date of the grant.)”
I thought the rule prohibited a person from having more than $100,000 of ISOs (based on the grant price) become exercisable in a calendar year? Otherwise, the additional shares would then become disqualified.
Some people interpret this rule to mean that a person can not exercise more than $100,000 of ISOs in a given calendar.
For example, what if an employee wants to exercise 1,000 ISO shares at a grant price of $102, and for the sake of the example, the grants were over multiple vesting years and did not violate the $100,000 rule. The total cost of the options would then over by $100,000.
Does the $100,000 cause the extra $2,000 of shares to become disqualified? I thought the $100,000 rule is only related to how many options become exercisable during a given year, and not the value of the ISOs at exercise when an employee purchases the option?
Any clarification on of how the $100,000 rule affects employees when they go to exercise their ISO shares would be greatly appreciated.
Your understanding is correct. The rule pertains to options becoming exercisable and does not limit the value of shares that are exercised in a given year. Whoever provided the language you quoted stated the rule incorrectly. We explain the rule on this page: