<p>Incentive Stock Options (ISOs) are a type of equity compensation where employees can purchase their company's stock at a predetermined price, typically below the current market value. This encourages employees to stay with the company and align their interests with the company's success.</p>

<h2>How It Works</h2>
<p>ISOs are granted to employees with a strike price, which is the price at which the employee can purchase the stock. This price is usually set at or above the fair market value of the stock on the grant date. The employee has a certain period, usually 10 years, to exercise the option and buy the stock. If the stock price increases, the employee can profit by buying the stock at the strike price and selling it at the higher market price.</p>
<p>ISOs are subject to vesting schedules, which means the options are earned over time. This is to prevent employees from leaving the company shortly after receiving the options. Unvested options are forfeited if the employee leaves the company before they vest.</p>

<h2>Why It Matters</h2>
<p>ISOs matter because they can be a significant source of wealth for employees, especially in startups and growing companies. They also serve as a powerful tool for companies to attract and retain talent. For example, a software engineer at a tech startup might receive ISOs as part of their compensation package. If the startup succeeds and its stock price increases, the engineer could potentially exercise their options and sell the stock for a substantial profit, benefiting both the employee and the company.</p>