According to Jeremy Goldstein Knockout options are the best solution for current corporation stock option woes. A knockout option is a clause that renders employee stock options null and void should their value plummet past a certain mark. By doing this the corporation is protected from overhang, burdening taxes, and ineffectual costs. Knockout options also provide incentive for employees to exercise the options, familiarize themselves with the market, and take more value in their own work.
Due to a number of disadvantages, many companies are opting out of stock options for their employees. Although offering stock is good for the company in many ways, it can also be damaging. There is the constant threat of overhang, as many employees do not do anything with their options. Many see it as a proper form of gambling and put no value in the options. Either way if the stock drops low, many employees who still hold onto their stock cause overhang, which then affects other investors. According to Jeremy Goldstein such problems can be avoided by using Knockout options to render such stock null if the value drops.
Jeremy Goldstein is a corporate lawyer with year of experience with business law. He owns his own law firm, Jeremy L. Goldstein & Associates LLC, and specializes in compensation and management matters for corporations. Goldstein has also been a part of numerous major business transactions. Over the past years he has participated in the Verizon merger with ALLTELL, Jeremy Goldstein has been a part of many historic business transactions in his time. Notable among them is the United Technologies acquisition of Goodrich, and the Verizon merger with ALLTELL, Duke Energy with Process Energy, Goldman Sachs and Kinder Morgan, as well as United Technologies acquisition of Goodrich.
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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