Over the past years, there has been a steep decline in the number of companies providing stock options as one of the methods of compensation to their employees. Observers have attributed this unusual trend to be one of the deliberate and conscious decisions such corporations are taking in a bid to save money but as Jeremy Goldstein explained in a recent publication, there are usually more complex reasons why businesses may take such actions.
In the article, Mr. Goldstein identifies at least three challenges that in most cases influence these businesses to hold back such benefits. One of the reasons is the risk associated with the stock value dipping to levels that can render it almost impossible for the employees to exercise their options. Secondly, due to the never-ending economic slumps, many employees have developed negative notions towards this means of compensation.
However, this is not to say that using stock options as a way of compensating employees does not have its own merits. Actually, Jeremy Goldstein says that in some cases stock options can be a better way of compensation when compared to others such as insurance cover, wages or even equities. This is because stock options offer a fairly gentle learning curve for an average person and the fact that they provide relatively equal value to each and every employee is a huge plus.
Another advantage of using stock options to compensate employees is the fact that the value of the shares of the company has to rise for the stock options to have a positive effect on the individual earnings of the employees. This in effect encourages employees to ensure that the business is successful by working even harder to come up with innovative solutions in a bid to appeal to more clients as a way of increasing company revenue.
In order to award stock options to employees sustainably, Jeremy Goldstein suggests a couple of measures that companies can deploy to realize the aforementioned benefits. The first step is to make sure that all the necessary measures are in place to keep overhang, initial and recurring expenses to the lowest humanly possible minimum. This is where knockout options come into play whereby employees are entitled to certain benefits for a specified period of time as long as the share price of the company does not go below a given number.
About Jeremy Goldstein
Jeremy Goldstein is an experienced business lawyer with one of the most sought-after law firms in New York.