Stock Options For Employees As A Form Of Compensation Or Incentives

control over the company. Also, as we discussed in the cash option, share price will

Corporate valuation is improved by providing strong incentives to employees who work in MII. For example, publicly traded stock options are available for employees of MII, which should provide motivation and reward.

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

10. Stock options provide the holder with an option to acquire a specified number of shares in a corporation under prescribed conditions and within a stated future time period. Options that are issued as an attachment to other securities are called stock warrants. Warrants may trade separately while options do not. Options often have a limited life while warrants often have no expiry date.

Results on worker retention suggest unions decrease turnover among lower-productivity workers, but increase it among higher-productivity workers” (Frandsen, 2010). Another way to retain top talent is to offer stock options. An analysis of 229 companies found that “only 5.5 percent of the companies with unions have broad-based stock options, while 12 percent of the non-union companies did” (Performance Effects of Options in "New Economy" and Unionized Companies, 2011). The study also found that unionized stock option companies improved productivity relative to non-stock option companies, but that compared to non-union stock option companies, the unionized companies did somewhat worse.

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2006. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21.

Dunlap’s salary was just over $500k and he took no bonus. But he received a substantial stock option and award package. The restricted stock award component was to vest in two years, meaning that Dunlap’s compensation would be closely linked to the company’s stock performance for that time. Although the short term profits benefited shareholders, no incentives to create a long term, profitable company existed. Sunbeam’s performance-based incentives brought greater motivation to Dunlap to increase the firm’s stock value by any means necessary. He created remarkable shareholder value, in part by cutting half the company's 12,000 workers and closing many plants. Generally speaking, the first compensation package was excessive, but it linked the CEO’s and stockholders’ goals. It was not well designed, but it was congruent with Sunbeam’s business model of maximizing shareholder profits, but it drove an unhealthy behavior.

b) ESOP’s: Incentives that allow the employees to buy the share of the firm they are working at lower rates which creates the sense of ownership.

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2006. The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21.

Most important, the employees can earn stock, which gives them voice within the company to make pertinent decisions.

For each share purchased with the employee’s own funds, a French bank would lend them funds to purchase nine additional shares (up to 500 shares total). Employees would then place all ten shares in the bank’s custody as collateral for the loan. Employees would be prohibited from selling the shares for 4.5 years except under unusual circumstances. The loan could be repaid at the end of 4.5 years either from the employee’s pocket or through sale of the shares. BT would guarantee employees a minimum of 1.25 times the money employees put up to purchase the shares. In exchange for this guarantee, BT would take 1/3 of any price appreciation at the end of 4.5 years over the public offer price of 150Ffr per share. In terms of financial contracts this would be a combination of options (employees’ option to sell stock after 4.5years) and futures (BT’s obligation to pay 1.25 times employees’ personal contribution). This alternative seems to be fair for employees in the case of price depreciation, because they will have a secure profit. If shares appreciate, they will earn 33.7% of return per share less than in A1, but will also earn it on a higher amount of shares. Therefore, it is important which effect prevails. Moreover, with BT’s proposal employees lose share ownership, unless they decide to pay with their own resources.

Besides that, CSI also offer the stock options to all the employees in the first year they joined the company but the value of stock option component varied depending on tenure and position in the company. Employees will be given four years from the offered date to buy or not to buy the stock and it is limit to 25% per year. It will be expired 10 years after granting or within 30 days of leaving the company. However, CSI has not yet implement the formal plan for annual stock option grants. Hence, the grants would be awarded based on an ad hoc basis to ensure that employees’ stock holdings were in line with their current position and contribution to the company. Stock option actually is an effective motivational tool but not for CSI, this is because their employees do not understand the options and does not know how to value them. Moreover, the options were become worthless since the company is not a public company. In another word, CSI were lack of formalization to control stock options and does not give very clear direction to employees about the targeted areas and results through compensation system (stock option). Apart from that, stock option

Infosys provides strong property rights to its employees by providing employee stock option plans. Top management were given profit sharing plans based on the company performance as an incentives. ESOP’s usually guarantee long term employment. But later Infosys withdrew the stock options plan due to various complexities and accounting challenges.

Stock options provide a financial incentive to employees. If the company does well, then the employees benefit financially. Providing this benefit has the effect of the employee having a vested interest in how the company performs; therefore, the employee will work hard, do their best work, and stay