These days, many corporations no longer offer incentives such as stock options to their employees. There are many reasons for this change, but they primarily revolve around the ability of the company to cut costs. There are three major reasons that many companies no longer utilize stock options for employees, including the issues surrounding a significant drop in the stock price, the fact that economic downturns drastically affect the viability of the stock, often rendering them worthless, depending on the severity of the economic situation, as well as the significant accounting burdens that this method may incur on the company. If the stock value drops considerably, the stockholders may have to deal with option overhang. Staff at many corporations will often consider an increased pay rate as more beneficial than attaining stock options, making them less desirable. Stock options may also have many upsides for the employee, as well as the employer, including the fact that they are generally easily understood and may cause the staff member to give increased effort in regards to opportunities that may benefit the corporation. One of the best solutions for corporations to satisfy the need to provide stock options may be to include a knockout with the option. A knockout clause in regards to stock options will allow the option to become worthless if the value of the stock dips below a predetermined number. Because a knockout option stays valid for a shorter time period than their traditional counterpart, issues regarding accounting expenses may be cut tremendously.
Jeremy Goldstein is a partner, as well as the founder of Jeremy L. Goldstein and Associates, LLC. He attended New York University School of Law, the University of Chicago, and Cornell University, where he received a Bachelors of the Arts Degree cum laude, expressing proficiency in all subjects. Before Jeremy Goldstein began his career with Jeremy L. Goldstein and Associates, he was a partner at the firm Wachtell, Lipton, Rosen, and Katz. Over the last ten years, Jeremy Goldstein has been involved with many of the worlds largest corporate transactions, working with Duke Energy, Verizon Wireless, JP Morgan Chase and Co., as well as playing an integral role in United Technologies Corporation’s acquisition of Goodrich. Today, Jeremy Goldstein holds a position with the American Bar Association as the Mergers and Acquisition Subcommittee of the Executive Compensation Committee and is also an active writing contributor, speaking on issues such as corporate governance and executive compensation.
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