Stock options grant the holder the right (but not obligation) to purchase shares in a company at a fixed "strike price" within a specified timeframe. They are widely used to compensate executives and employees, especially at startups where cash compensation may be limited.
For executives at large companies, stock options represent the primary vehicle of wealth accumulation. When a CEO receives options with a strike price of $50 per share and the stock rises to $300, they can exercise those options and immediately capture a $250/share gain.
Options are typically subject to vesting schedules (e.g., 4 years with a 1-year cliff), meaning the recipient must remain at the company to gradually earn the right to exercise them.