Several corporations have recently decided put a stop in the provision of stock options to their employees. The reasons are usually complicated, but some companies do so in a bid to save money. The three circumstances that force companies to come into this decision are:
- A good number of employees have lost faith in this compensation method because they are aware that economic crisis often makes these options worthless.
- Options lead to high accounting burdens, and the associated cost may overpass the merits of these derivatives.
- The stock value may deteriorate and make it hard for the staff to exercise their options.
Merits of This Scheme
- The advantages of options depend on the success of company’s share value; hence employees will purpose to work harder to boost their earnings.
- This scheme is preferable to additional wages or insurance coverage due to its simplicity of understanding to members in aspects of stock options.
- Some companies provide compensation packages for the top employees hence it would make it harder to supply employees with equities.
The Way Out
If a company wants to persist in option provision for staff, it can benefit positively by subscribing to the right strategy, minimizing overhang, and avoiding excessive costs. Adopting the knockout barrier option is the best solution. These stock options have similar time limits and vesting, and employees only lose them if its share value drops below a certain amount.
About Jeremy Goldstein
Jeremy Goldstein is a business partner at Jeremy L. Goldstein & Associates LLC. This is a boutique law firm that has purposed to advise different committees and executive staff, in executive compensation and corporate administration matters. Before owning a company, Jeremy Goldstein was a partner at the law firm Lipton, Wachtell, Rosen, and Katz.
Jeremy Goldstein has been a critical player in many corporate transactions such as the acquisition of Duke Energy and The Dow Chemical Company. He chairs the Mergers and Acquisition Sub-committee of the ECC and member of the Professional Advisory Board of the NYU. Jeremy has an experience of more than 15 years in business law.
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