As the economy continues to stumble, large corporations are beginning to stop providing employees with company stock. Jeremy Goldstein is standing by his belief that companies should swap stock options for knockout options. There are three main problems that plague stock options. First, the value of said stock may fall suddenly and not allow time for employees to exercise their options, leaving the stockholders having to deal with the option overhang. Second, employees are skeptical of this form of compensation. Many see it as a gamble as economic downfalls can turn options worthless. Third, options cause massive accounting burdens and the costs involve may zero out the financial advantages of the options.
Options are still worth investing in as a company. Options are simplified to understand as an employee. Value of the options only rise if the company’s value rises as well. This will make employees work harder to ensure the company’s success. Employees may work harder at keeping and recruiting new clients. The IRS makes it near impossible to give employees equities. With shares, you face possible stronger tax burdens while options are lesser.
Knockout options can do away with some of the risk. Corporations can negate some of the overhang and ongoing expenses with a knockout option. Knockouts keep the same time limits as your standard stock option but employees can lose them if the value falls under a set value. With knockout options, stockholders have less worries when it comes to ownership shares. While they dont solve everything they do eliminate some of the hurdles tied to stock compensation.
Jeremy Goldstein is a New York based corporate lawyer. He has garnered more than 15 years experience as a corporate lawyer, specializing in corporate governance and executive pay. He has been a key player in many major corporate transactions including Verizon, AT&T, Merck, Bank One and Chevron. Goldstein serves on the board of a major law journal and the nonprofit Fountain House. He is partner and founder at Jeremy L. Goldstein and Associates LLC. Goldstein advises corporations, CEOs and management teams. Goldstein has been featured in many business magazines.