Recently, many employers decided to cut out stock options as an added benefit to their employees. Some did it simply to save money, but there are also other more complex reasons some make this choice. Employers usually find there are three major problems with providing stock as a benefit.
- The stock value has a tendency to drop significantly from time to time.
- Many employees are knowledgeable of the problems and do not see this as a great benefit for an employer.
- It can cost the employer more money that instead could be used to offer higher salaries.
Although there are problems, some employees do not mind as stock options are relatively easy to understand. Even more so than other types of benefits and stock is something that is equally offered to all employees. Having this benefit could also motivate employees to make sure the business runs successfully as their success ultimately equals the stocks worth. IRS rules can make it easier for a company to provide options rather than shares due to tax burdens.
Avoiding excessive costs takes the best strategy to be in place. The right strategy cuts costs rather than incurring costs that van impact any company financially. A great solution is to implement a barrier option known as a “knockout“. Everything is the same for this type of stock option except they are lost if the value of the stock goes below a certain solar amount. A company can also implement having a time frame that they expire permanently such as a week. So, if the value falls below for less than a week than comes back up the shares are still available, but if the value stays below for more than a week then they expire indefinitely. There are many benefits to this strategy such as non employee stock holders face less worries about shrinking ownership shares and the annual earnings of an organization are reflected more accurately each year.
Jeremy L. Goldstein is currently a partner at Jeremy L. Goldstein and Associates LLC. which is a law firm dedicated to financial advisement. Before starting his own firm, Jeremy L. Goldstein worked as a partner at Wachtell, Lipton, Rosen & Katz. Jeremy L. Goldstein has been a part of many large corporate transactions including Verizon Wireless/ALLTEL Corporation, The Dow Chemical Company/ Rohm and Haas Company, as well as SBC Communications Inc./AT&T Corp.
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