Nowadays not very many companies provide their employees with stock options. Several businesses do it to save funds. But, according to Jeremy Goldstein, three other vital reasons may lead to such a move.
- A fall in the stock price hinders employees from exercising their options. Stockholders may risk option overhang, but the business must still account for all related expenditures.
- Sometimes the option might result in grave accounting problems. On occasions, the costs are likely to shadow profits from such derivatives. Employees rarely see the benefits as valuable, in comparison to the better salaries the employer would give if the options were removed.
- Many workers are aware of that method of compensation. Furthermore, they understand that an economic decline will render the options valueless.
Besides the reasons stated above, this method of compensation can sometimes be chosen over better insurance or even additional remunerations. This is so because they offer something of similar value, and employees have no problems understanding them. In addition to that, the options also boost earnings as long as the share value keeps rising. That being so, employees feel driven, and always work to ensure the company moves in the right direction.
There are also rules set by the IRS that make it almost impossible for companies to provide their employees with stock options. The companies risk facing extensive tax problems if they provide stocks over options.
The right strategies must be embraced if a company wants to continue providing its employees with stock options. The implemented approach must minimize the overhangs as well as current expenses. According to Jeremy Goldstein, implementing a barrier option known as a “Knockout” is the best solution. As much as options have similar time frames as other forms of compensation, employees lose them if share value goes below a certain minimum.
However, it is essential to know that as much as knockout options expel obstacles related to stock compensations, they do not solve all the problems. Executives must communicate with accountants about the consequences of giving stock options.
About Jeremy Goldstein
Jeremy L. Goldstein is a practicing partner at Jeremy L. Goldstein & Associates LLC. The boutique law firm’s activities include advising compensation committees, CEO’s, and even management teams in executive compensation and corporate matters.
Jeremy Goldstein is considered as the go-to guy for corporates when they need legal assistance. In the past decade, he has handled high profile corporate transactions on behalf of companies like AT&T, Verizon, and was also involved in UTC’s purchase of Goodrich.
To learn more, visit http://officialjeremygoldstein.com/.