What Employers Need to Know About Stocks Options Compensation Method as Explained by Jeremy Goldstein
Stocks option is one compensation method that employers have run away from in the recent past. Besides being an expensive affair, there is a high risk of the stock’s value dropping making the options exercise impossible for employees. Even in such a case, the employers are required to declare the expenses involved, and the accounting burden that comes with them is big. Besides, employees are cautious about them as most are aware of the options worthlessness in downturns.
Putting the disadvantages aside, employers can still benefit from stock options as a compensation method. An employee’s earning can only go up when the company’s share value goes up. As they are aware that the rise is dependent on their hard work, they will give the best to the benefit of the employer. In places where equities are not allowed a form of compensation, employers are left with a choice of either shares or options. Considering the two choices, options have a lesser tax burden than shares. Due to their simplicity, there are still employees who prefer them to other choices such as insurance covers or equities.
Employers can still find a way to work around them to prevent overhangs and expenses by adopting a knockout strategy. One thing about stocks options is that if the share value drops under a particular level, employees cannot exercise them. Their validity period depends on the volatility of a company’s share. If the volatility is relative, the stock’s options have a shorter validity time. With the knockout strategy, the initial costs are minimized.
About Jeremy Goldstein
Jeremy Goldstein is a highly knowledgeable lawyer in the areas of business law. He is extensively learned as he holds a master’s degree earned from the University of Chicago. His Juris Doctor is from New York University.
Jeremy Goldstein runs his law firm, Jeremy L. Goldstein & Associates. He had earlier worked at Shearman & Sterling LLP.
Connect with Jeremy Goldstein on LinkedIn.