Companies both big and small are beginning to cut stock options from employee benefits packages. Many complex factors have played in a part in companies decisions. There are three main concerns about this type of compensation. (1) The accounting expenses negates any expected gains.(2) When the stock value falls suddenly, employees will not have enough time to execute their options, while the company accountants must report all associated expenses. That opens up stockholders to the threat of possible option overhang. (3) Stock options provide employees with a coin-toss type of compensation.
Despite the concerns made and the criticisms, there are advantages of options being a form of equity compensation. First, employees only benefit if the stock value increases. Options create incentives for employees to keep the stock value high. Second, stock options are easy to understand to employees. Third, easiest to administer under the strict Internal Revenue Service regulations.
For those who continue to want to offer options, there is a solution called the “knockout” stock option. The option is similar to its counterpart, by having similar vesting features and time limits. However, the option will automatically be terminated if the price of the stock falls below a set level. The knockout options result in lower accounting expenses in comparison to traditional stock options. Knockout options eliminate the obstacles that come with stock-based compensation.
In order to further consider offering options, the company executives need to meet with auditors to discuss any potential consequences relating to the offering of these options to employees. Jeremy Goldstein believes company need to wait half a year before offering new options, otherwise it may impact their quarterly financial statement negatively. When companies go with options instead of offering shares, they draw less tax burdens.
Jeremy Goldstein is an experienced financial lawyer consultant. He advises corporate executives when it comes to business issues such as corporate governance and executive compensation. He is the founder of Jeremy L. Goldstein and Associates LLC. Prior to starting his boutique firm, he was partner at Lipton, Rosen and Katz, from 2000 to 2014. Jeremy Goldstein has over 15 years of experience as a lawyer. He has been influential in several major corporate transactions involving many top companies such as Chevron, United Technologies, Duke Energy, Verizon and GM. Jeremy Goldstein is based in New York City, New York and has become one of the country’s top business lawyers. He continues to help companies in need of advice on employee compensation. Learn more: https://www.avvo.com/attorneys/10019-ny-jeremy-goldstein-978103.html#client_reviews