Qualified vs. non-Qualified stock options for Self Employed

[Belgarath]

Interesting question here. A person is a director of a corporation. As a portion of compensation for that person, stock options are granted. This person receives 1099 income, and files as a self employed using a Schedule C.

First, my understanding is that "Qualified" stock options can only be granted to employees, so I'm assuming these are non-qualified stock options.

The question is: does the exercise of these stock options produce income includible on a Schedule C, and constitute "earned income" for qualified plan purposes?

Director's fees are considered earned income, so it seems to me that it does (although if the options are exercised and the stock is bought and held for more than 1 year, then there could be Sch. C income for plan purposes in the year of exercise, and capital gains on a subsequent sale after more than a year, with the capital gains not being eligible.)

Whether the compensation is "reasonable" or not is a separate issue, and I'm not concerned with that, at least at this time.

Thoughts?