A stock option is a financial contract that gives an individual the right, but not the obligation, to buy or sell a specific number of shares of a company's stock at a predetermined price, known as the exercise price, within a certain time frame. This is often used as a form of employee compensation, allowing workers to benefit from the company's growth. When employees exercise their stock options, they can purchase shares at the exercise price, potentially profiting if the market price is higher. This incentivizes employees to contribute to the company's success, aligning their interests with those of shareholders.