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According to Jeremy Goldstein, Knockout Options May Be the Best Solution

Today, many major corporations around the world have begun eliminating stock options for their employees. While stock options were once a regular incentive for employees of major companies, the ability for a company to cut costs, along with a myriad of other barriers, have rendered them rare in the world today. There are normally three chief factors that cause companies to discontinue the use of stock options, including the effect that economic downturns have on the stock options, a steep drop in stock price may cause overhang amongst stockholders, and they often come with serious accounting burdens. When economic downturns come into the picture, stock options may be rendered worthless, and employees often value a higher salary when compared with stock option incentives. While there are many disadvantages to offering stock options to employees, there also many incentives for each side to doing so. It is relatively easy for an employee to understand the fine points of their stock options and they provide equal compensation for employees utilizing them. Using stock options as an incentive also gives increased motivation for employees due to the fact that a rising stock price will be good for them, making it mutually beneficial. Providing stock options, rather than shares, also gives the company a break when dealing with the Internal Revenue Service, as their rules make it difficult to give out equities to employees. The solution for these issues may be to provide employees with stock options that include a knockout clause, as they render the option worthless once the price of the stock drops below a number implemented by the corporation.

Jeremy L. Goldstein is the founder of Jeremy L. Goldstein and Associates, LLC, as well as a partner. Jeremy Goldstein received his Bachelors of the Arts Degree from Cornell University, and he later attended New York University School of Law, where he received his J.D., and the University of Chicago, where he received his M.S. Before founding Jeremy L. Goldstein and Associates, Mr. Goldstein was a partner at Wachtell, Lipton, Rosen, and Katz, and over the course of the last decade, he has been involved in many of the most prominent corporate transactions. He played a major role in the acquisition of Goodrich by United Technologies Corporation and was also instrumental in several major deals with Bank of America Corporation, Miller Brewing Company, JP Morgan Chase and Co., and Kmart Holding Corporation.

 

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