Various companies have decided to stop their employees from acquiring stocks over the past decade. The reasons that they are citing for this unceremonious move are many but saving money is one of them. The other reasons for this include the following:
The stock option of compensation often gives employees an added accounting burden. Moreover, the finances may dwindle rapidly and it will not be equal to the compensation that the employee required. Most employees prefer to be compensated in cash rather than stocks because it may result in a higher amount.
Most employees are cautious about this method. This is because they are afraid of the depreciating economic value of some stock. Therefore, they have become more vigilant when it’s being used as a means of compensation.
The value of the corresponding stock may drop rapidly. Therefore, the stock and the corresponding compensation may not tally. This will automatically result in the loss or of the company.
On the other hand, Jeremy Goldstein says that the stocks compensation still has some advantages. This includes the fact that workers are likely to work hard to ensure that their stock compensation remains relevant in the existing market. Therefore, the solution of ensuring that this method continues to work is to employ the knockout method, taking steps to minimize overhang and to eliminate the stocks for a week when the company isn’t doing well. In addition to this, the company must communicate with its auditors about all options they are offering their employees.
ABOUT JEREMY GOLDSTEIN
Jeremy Goldstein is a partner at Jeremy L. Goldstein & Associates, LLC. This is a boutique law firm which specializes in advising compensation committees, CEO’s and management teams in executive compensation.
Visit http://jlgassociates.com/ to learn more.