Are Stock Options Still an Incentive?
In the thriving economy with low unemployment rates of the last decade, numerous companies considered stock options as a cost-effective incentive program to lure talent and retain employees. For the first time ever, stock options were extended to company employees below management level, allowing each and every employee to participate. As a result, stock options commonly became incorporated into employee compensation packages. Given the shifts in the economy, stock options may or may not be quite as appealing as they once were, and everything sits on the success or failure of the organization.
How Stock Options Work
When an employee purchases or is presented company stock, he becomes a stockholder, part owner of the company. It is a strong incentive to ensure the success of the company for those who see the significances. The more you put into it, the more you get back in the long run. The hope is that the stock will gain in economic value, building wealth for both the company and the employee shareholder.
There are a lot of success stories, especially in the field of high-tech and dotcom startups. Some companies that look like shaky startups in the beginning later skyrocket to celebrity and riches, taking employee stockholders along for the ride. Others go bust, leaving shareholders in the end holding the bag. I remember an executive meeting at a company I worked for ten years ago that was riding the bubble just before the crash. The CEO waxed enthusiastic about our rocketing stocks and talked about how even secretaries got rich when (I want to say IBM) went public. He warned us about getting too caught up in the money part of it and staying focused on the job at hand, but we believed that our stock options were going to provide a nest egg. We believed because he believed. Less than 6 months after that meeting, the bubble burst and dotcom stocks took a nosedive. The company, along with its bright, shiny future, were no more.
Investing is always a gamble, so before you roll those dice, consider carefully whether you believe that your company has a solid, long-term future.
Making the Decision
To better understand employee stock options, on that point are some things you should look into:
Employers may offer stock options at any time or during specific time periods each year. Find out when the opportunity will exist. You may not be eligible for all stock offerings. Find out if there are vesting opportunities. Explore the value and history of the stock. There may be restrictions to how long you must hold the stock before divesting.
Playing the Market
Stocks are possibly the most lucrative fiscal strategy for long-term investment. That’s why 401(K) plans and IRAs are dependent on stocks for growth. The most successful investment plans are well branched out. If you’re new to the stock market, investing in your own company has certain advantages. First, you put money into the company itself, which helps to ensure its success. This gains the company in two ways, cash infusion and employee incentive to work harder and take the job more seriously.
Are employee stock optionsstill a motivator?
Whether your stocks have value in the long run depends on the company, so it’s anyones guess. But one thing is sure, early investment is a modest chance with a potentially huge payoff. When you invest, especially in a new company, you send a message of trust to outside investors. In stocks, perception can be everything. In that case stock options are indeed an incentive. With any investment, you have to be equipped to lose our money, so don’t gamble with more than you can afford to lose and don’t be obsessive. Stocks are a long-term proposition, not a daily win/lose strategy.
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