Sending Out an SOS Methods for Companies to Resuscitate Underwater Stock Options

Overview: Stock options have been considered the darling of corporate compensation vehicles for many years. Besides delivering tremendous value to employees, there are two primary reasons why employers have favored them. On a philosophical level, stock options are ideal for aligning employees’ compensation and shareholders’ interests. If the option exercise price is set at the stock’s fair market value on the date of grant – which it usually is – employees benefit only if the stock price increases. In that case, shareholders also benefit. The second reason employers favor stock options is that the cost of delivering compensation to employees in stock options has no affect on a company’s earnings because, under U.S. accounting rules, there is no compensation expense for stock options granted at fair market value. Thus, it’s not surprising that stock options not only are the most commonly used long-term incentive vehicle, but also make up the largest portion of the long-term incentive value that is delivered to employees. For executives, the stock option value often exceeds cash compensation. And stock options work. No one argues that they work very well when the stock price increases because employees, the company and shareholders all benefit. To get the details of this topic read the article.

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Format: PDF | Size: 43KB | Date: Jan 2003 | Pages: 5