The Use of Options in Compensation Packages

Stock options, once exclusive to executives, are now becoming more broad based to include middle management and non-management employees. In 2000 an estimated 10 million workers ’ compensation packages contained stock options. In today’s competitive environment, firms are looking for ways to attract and retain workers, reward outstanding performance, and re-turn value to shareholders while minimising costs. Stock options provide such a vehicle. The paradox is that while stock options are intended to tie pay to performance, many employees lack the knowledge of how the op-tions actually work. Employees need to be educated as to the different types of plans and how it affects their total compensation. A contentious debate exists over whether firms actually benefit from stock options plans and the reasons why some prosper while others fail. Researchers and experts agree that the success of a stock option plan lies largely in how effective firms are at managing the plan and communicating it to its employees