For years, stock options have been every big corporation’s go-to compensation method. Recently, many of those corporations stopped offering stock options for various reasons. The first and easiest reason to understand is money. It’s cost a lot more to give every employee stock options.
For most companies, their reasons are a bit more complex, but the reasons are still understandable. Obviously, when it comes to the reliability of stocks it’s completely dependent on that particular day. One day, everything could be positive; and the next day, everything’s worthless. Even if things hit the fan, everything has to be reported and stockholders face option overhang.
With all the potential downsides of stock options, employees don’t trust them like they used to. Before, the markets weren’t so flooded with schemes and blatant corruption. These days, a lot of employees look at stocks options like casino tokens. They’d rather have cash they can keep track of by themselves.
Another big reason corporations are dropping stock options is so that they don’t have to deal with all the paperwork. Stock options bring huge burdens for the accountant. When all is said and done, it might cost more to offer stock options than to just offer higher salaries.
Even though it seems logical to get rid of stock options, Jeremy Goldstein thinks that corporations should give stock options another chance. There are plenty of reasons that stock options worked for so long. Unlike other options, stocks bring a level of equality to all employees.
The greatest advantage that stock options hold over all other options is that it’s heavily based on the company’s success. When the company’s doing well, the stocks are worth more. This gives employees a personal reason to prioritize the company’s success. People might work harder if they own personal earnings are dependent on the company’s success.
One question people might be asking: who is Jeremy Goldstein to be advising others. Well, Jeremy Goldstein is one of the top executive compensation and corporate governance attorneys in the nation. He works at this own boutique law firm and advises compensation committees, CEOs, and management teams on a daily basis.
When he’s not working in the office, he’s visiting corporations or speaking at conferences all across America. He’s been listed as a leading lawyer by several legal publications, including The Legal 500. He’s also written numerous essays about executive compensation. Learn more: https://corpgov.law.harvard.edu/contributor/jeremy-goldstein/