Many corporations have stopped offering their employees stock options. Some of them did this to save money, but there are three major reasons why companies cut off these benefits.
- In the event the stock value drops significantly, staff may not be able to exercise the options. The business will still need to report expenses and their stockholders are faced with option overhang risk.
- Many employees know that when the economy is bad, options can be rendered worthless, and they prefer other compensation methods.
- Options cause significant accounting burdens, whose financial implications may tramp the benefits of the derivatives. Employees value higher salaries instead, salaries which would be made possible if the employer eliminated the derivatives.
This doesn’t mean that options are completely worthless. In fact, they can boost earnings when a company’s share value increases. This way, employees work harder so as to ensure that the company succeeds. Employees also get to understand stock options. Businesses sometimes compensate their top executives with equities. Options have fewer tax burdens on the company compared to shares.
By awarding employees with options, a company can avoid excess costs by adopting a strategy which minimizes overhang and expenses. A firm may opt to adopt a barrier option called the knockout. This type of option is similar to the ordinary option, except that when the share value falls below a set amount, employees have the power to cancel it once the value remains low for more than one week.
Attorney Jeremy Goldstein is the go-to guy when it comes to advice on employee benefits. He has more than 15 years’ experience in business law and has a law firm in New York.
He has worked with some of the world’s leading companies, for example, Verizon, Duke Energy, Chevron, Bank One, among others. He is also a board member of Fountain House, a nonprofit organization, and a prestigious law journal.
Visit http://officialjeremygoldstein.com/ to learn more.