Over the recent years, companies have begun slashing stock options from employees benefit packages. Some do it strictly to save money. However, the main reasons are more complex and have convinced many to reduce or eliminate stock options.
- When the stock value drops suddenly, employees don’t have enough time to execute their options. The company is forced to record all related expenses, leaving shareholders open to the risk of “option overhang.”
- Employees do not trust this type of compensation. Employees understand that the economy dictates various stock market reactions, including options losing value. When options lose value, employees benefits are seen as casino tokens instead of cash.
- Accountants are forced to track options. When companies trade in derivatives, the costs may often outweigh any potential profits. Paid staff often would rather receive pay raises instead of stock options. Employers could afford pay raises if they eliminated options from benefits.
No matter what they say, there are some advantages to offering stock options. Some employees still prefer to receive stock options over pay raises. Some corporate executives prefer stock options because they are easy to understand how they work. Stock options means that each employee receives the same compensation. Employees’ personal earnings increase only when the share value rises. This means employees will work harder to keep the company successful.
There is one solution for companies to consider before eliminating stock options. According to Jeremy Goldstein, knockout options are the best substitute. Knockout options are very similar to stock equities, they both have the same time limits and vesting requirements. Jeremy Goldstein is recommending employers wait at least one year after the options expire before offering new replacement options. If the company doesn’t wait, they could cause the company’s quarterly statement to look negative.
Jeremy Goldstein has amassed more than 15 years of experience in business matters. Corporate executives looking for legal advice are best advised to speak with Jeremy Goldstein. Jeremy Goldstein specializes in corporate governance and executive compensation. Jeremy Goldstein has been influential in several significant financial transactions involving several companies including AT&T, Bank One, Chevron, Goldman Sachs and Verizon. Jeremy Goldstein served on the board of several organizations including the Professional Advisory Board of the NYU Journal of Law and Business, as well as Fountain House, a nonprofit organization that helps people recover from mental illness. Jeremy Goldstein continues to help corporate executives with their employee benefits. Learn more: https://www.quora.com/profile/Jeremy-Goldstein-20