Many companies often offered stock options to employees as a means of alternative and additional compensation. While the advantages were often worthwhile, a lot of companies and corporations have dispensed with the practice. There were several basics principles that led to the abandonment of the programs including the price of the company stock may drop making it impossible for employees to exercise their options at a reasonable profit, the options may result in increased accounting expenses making the associated costs more expensive than the financial advantages.
A draw back to the stock option plan is most employees would rather see higher salaries than additional compensation hinging on the economic health of the company. To some stock option compensation is preferable to better insurance coverage, higher salaries and equities because it is easier to understand stock options and is more evenly distributed than other types of compensation. Stock options give employees a sense of pride and personal investment while encouraging employees to work harder for more customer satisfaction, develop innovative ways to conduct business and attract more desirable clients.
The best solution to stock options is what is called a “knockout.” They work the same as stock options in principle, but if the stock price falls below a prescribed value, they are lost. To keep the system’s integrity, the down time must meet a time frame such as a week rather than a few hours. This option may reduce initial costs as options are valid for a shorter period of time. Knockout clauses often enhance the bottom line as the annual proxy gives a more accurate earnings outlook, as it lowers executive compensation figures as reported on the annual disclosure forms.
Knockout options do not solve all the problems, but they do seem to eliminate some of the larger obstacles associated with stock options as a preferred method of added compensation. As companies are abandoning stock options for other preferred methods such as knockouts, it is wise to understand that companies have to wait for all the old benefits to clear before stating something new and that could take 6 months or more.
Jeremy Goldstein is the founder of Jeremy L. Goldstein & Associates, LLC and focuses on advising compensation committees for large corporations. Before the founding of his own company, Goldstein was an attorney at law in New York City. His practice focused on offering advice to large corporations to help them better handle EPS (earnings per share). EPS’s often influence stock prices. Goldstein earned his Juris Doctor (JD) degree from the New York University School of Law.
Goldstein has worked with large corporations including stockholding companies, oil and petroleum companies, banking and similar financial institutions and cellular companies. Goldstein is considered one of the top attorney’s by the Legal 500, as well as the Chambers USA Guide to America’s Leading Lawyers for Business. Learn 1more: https://profiles.superlawyers.com/new-york-metro/new-york/lawfirm/jeremy-l-goldstein-and-associates-llc/a958e5a0-ace7-44fa-8f53-da9d83c3b29b.html