Employee Stock Options? 358
Evil Butters asks: "ComputerWorld has an interesting article regarding the decline of Employee Stock Options. Long gone are the days when companies would pass out stock options like toilet paper (as you were lucky if it was worth as much). Since most of us are probably in IT related fields, is anyone seeing any turn-around in compensation packages -- especially for IT folk? Everywhere I look, companies are still cutting back and finding reasons why compensation does not need to be increased (except for CEO's of course) no matter what your performance is like. But according to the article, 54% of the top S&P 250 companies are (at least) using restricted stock as performance perks, etc."
Stock _awards_ (Score:3, Informative)
Large public companies mostly still have employee stock purchase plans, allowing employees to buy company stock for ~10% discount.
Careful what you ask for... (Score:4, Informative)
No, not the options themselves. But the whole fight about expensing options.
Options never needed to be expensed; any dilution from option grants shows up on the bottom line and any analyst with two brain cells to rub together can tell the difference between "earnings" and "fully diluted earnings"
But folks (including many people here) cried out in favor of expensing them, and in doing so, ensured that Mahogany Row (i.e. senior management and executives) is now the only part of the company has a realistic chance of getting an option-based lottery ticket, let alone winning with it.
If you're Warren Buffett or Bill Gates, that's just fine: less folks getting rich means more room at the top. If you're the government, that's also just fine: less chance of Joe Sixpack retiring early on a long-term capital gain (or effectively tax-free via an IRS section 83(b) election) means more tax dollars as restricted stock grants are taxed just like wages. If you're Joe Sixpack (or the Fred Winecase hiring them) and either of you are in the business of busting your balls to build something and motivate yourself and/or your employees, however, you're outa luck.
So be careful what you ask for -- because given half a chance, FASB will give it to you, and they'll give it to you good and hard.
Re:Yes. My company just started (Score:2, Informative)
Perhaps. They might be issuing non-registered securities as part of a private placement and providing a way for the employees to 'get in early.' Be VERY careful with this. (and good luck trying to sell any of it if your company does NOT go public. Talk to a lawyer to find out why).
If this is anything like my company, you are being issued 'common shares' while the real investors (and executives) are being issued 'preferred shares.' The differences can be HUGE (voting rights, dividends/lack of, etc...)
Obviously don't rely on
Yes and no... (Score:3, Informative)
At the end of the day, the CEO's pay will not change. As others have alluded to, you pay the CEO enough to keep him from going to another company, as he is the most important person (generally) who has the most significant impact on earnings. If he can make you a fraction better than your competitor and your revenues are $1BN, a few million in pay is worth it. This will generally hold true for the upper executives who report to the CEO as well.
However, what about the little guy? The same holds true. They'll pay you what they think you're worth. Around the nation, it's not going to affect you that much. Pay is pay, and even if you get fewer options you should be rewarded in other ways (better stock performance due to the lower dilution, higher salaries/bonuses, etc). If you're not, there will be someone who will pay you what you were making before.
If there isn't, that means you were overpaid because the company could pay you and not expense the compensation. Sorry.
Here's the real kicker: ESPP's. Many companies allowed employees to purchase stock through ESPP's (Employee stock purchase plans). You could purchase stock at a 15% discount (so buy a $10 stock at $8.50) with usually a 6month to 2 year lookback. This was a huge source of income for many working at these companies. These practices will now be expensed, and companies will begin getting rid of ESPP Plans.
So, let's say your stock has fluctuated from $10 to $15 over the last two years. It's currently at $14. You have a 2 year lookback, so you can buy at $10 with a 15% discount which equals $8.50. Think about it! You can use 15% of your salary to do this. Let's say you make $100k per year. You buy $15,000 worth of stock at $8.50 per share, or 1,765 shares. Assuming you hold these shares for 1 year and the stock price neither drops nor increases, you can then sell it at $14 per share. That's $9,700 in extra income you're losing by this plan going away.
So basically, if people cut back your options or ESPP plans, demand a higher salary, higher target bonus, or a company car. If the company is unwilling to increase your compensation, then find someone who will.
I'm not going to go into the tax implications of Rstock vs. Options and why companies do things a certain way. If you have questions, contact me. I'll put up a yahoo addy so the spam goes there. razzak()jallow(@)yahoo.com (no parenthesis)
*Note: I'm not an advocate for or against expensing options, but I do feel it allows the non-expert investor to more easily compare performance across companies that grant options and those who do not.
Re:Yes. My company just started (Score:3, Informative)
Business plans typically are full of best case scenarios - I've written a few of them myself, and have occasionally been told to "gild the lily" a bit in order to get the people putting up the money (in my case, banks; in your case, it's you!) excited and wanting to jump on board.
If you're keen on staying at the company for a long time, have a lot of belief in the people running it, your company has some competitive advantage that sets it apart (no, that doesn't include "the quality of our people" since all your competitors will say the same thing about themselves) and the market for what you produce seems to be set for long term growth, by all means think seriously about investing some of your loot.
If, as may be the case, you don't think you're in a position to judge these things, try to find someone who can.
Alternately, you can treat it like betting on the lottery - invest some small amount from each pay cheque and hope like hell.
Even if you're convinced your company is gonna make it big, talk to solicitor / accountant anyway. You don't want to make $5m in one big payday in 10 years' time, then have it all chewed up in taxes...
Good luck.
Microsoft abused stock options (Score:1, Informative)
3) Convincing Employees to Take Less Real Wages: Microsoft aggressively markets stock options to new employees in an effort to take wage expenses off the books. They also know that they can pocket the exercise price employees will be required to pay to take ownership of the stock. What also seems clear is that Microsoft is still aggressively marketing its stock option program to new recruits. To quote an email received, "I am about to begin employment at Microsoft and the stock option was the selling factor. Does your article overall state that it will be bad for me and will fail me in my retirement planning?" Is Microsoft fulfilling its disclosure obligations to its own employees, especially those that have put their entire 401K balance in Microsoft stock? This explains how 22 percent of Microsoft's massive cash balance has actually come from its own employees in the form of them prepaying their own wages through stock option exercise prices.
6) Stock Option Accounting: It is important to note that any discussion of stock option accounting must address two completely different and independent situations. The first is to analyze the impact of options exercised and already retired and the second is to analyze the remaining options debt outstanding. This study focused on both whereas most media coverage only focuses on the remaining options debt outstanding.
Options Exercised and Retired: When stock options are exercised, the options are retired as the employee takes ownership of the stock. The value of these "retired" options should not be a subject of debate. Upon exercise, the options are valued at the market price of the stock less the exercise price and the employee pays W-2 taxes on this gain, even if the stock is not sold. The company then takes a tax deduction for wage expense for the same amount. What is surprising is that not a dime of this expense is charged to earnings at Microsoft, which they could voluntarily do. This amount alone for 1999 should exceed $9 billion even though net income is only $7.8 billion.
Remaining Options Debt Outstanding: The remaining unexercised stock option liability is a completely separate issue and a debt just as real as the current stock quote, especially if half of the options are currently vested and exercisable. We all know that stocks can be over and under valued yet the market gives us a price on any given day and that is the price. The Black Scholes and related footnote disclosure is a great mathematical model yet has become nothing but a Trojan Horse for plundering the retirement system. What the Treasury Department and Federal Reserve might concern itself with is that this debt, $60 billion at Microsoft, has no interest cost that hits the income statement and increases $800 million with each $1 increase in the stock price. Simply put, Microsoft is somewhat immune to Federal Reserve interest rate hikes, which explains why the stock is increasing as the Fed raises rates and continues creating a Long Term Capital like debt pyramid.
Re:I think the problem is... (Score:3, Informative)
My wife and I are having a hard time trying to decide on what kind of insurance to get. This is because of the $1,400.00 she is bringing home, almost $400.00 of that is presently going towards insurance.
After looking up insurance, sure you can get $200.00 med insurance, but then it has a $10,000.00 deductible on it! Since we pay out maybe $2,000.00 a year max for medical costs this doesn't make sense.
Actually, taking the large deductible insurance plan makes more sense than you think.
Based upon the number that you give, you are presently paying $4800/yr in health insurance, which I assume has some nominal deductible or copayment. This means that you probably are paying, say, about around $5000/yr for health care (insurance plus out-of-pocket).
If you took the high deductible health insurance, you would end up paying $2400/yr for the insurance plus around $2000 out of pocket for medical costs. In total, you would be paying only $4400/yr for health care.
Of course, you would be taking somewhat of a gamble that you and your wife aren't going to need something major, but you can hedge against this by putting the $600/yr difference in the bank each year to cover yourself for a rainy day.
The whole point of insurance is to handle catastrophic losses. However, it seems as if our current health insurance system isn't really insurance in the traditional sense. Heath insurance covers every little thing with minimal out of pocket expense.
Most doctor's visits cost in the hundreds of dollars, which may sound like a lot, but if you factor in the cost of health insurance, I would almost rather just pay the expense myself and save the insurance for the things that I wouldnt be able to pay, like open heart surgery. With the way insurance premiums are, it seems like I would come out ahead that way.
Plus, I would be able to see whatever doctor I wanted instead of being limited to "the network". Since I am paying my own way, I would have more flexibility to be a good consumer, rather than relying on the insurance company to be a good consumer for me.
My fix to the health care system would be to offer catastrophic health insurance coverage (~$3000 deductible) for lower premiums, and then allow people to put money into a Medical Spending Account on a tax deductible basis to cover medical expenses. For the working poor, I would offer some tax credits to defer the cost of the insurance and to help fund their MSA's. Then people would have maximum choice while still having the insurance coverage in case they are hit by a car or something.
Re:Just got a raise - sort of (Score:3, Informative)
My net pay is around 69%, after taxes, company group health ($20/month), Canada Pension, Employment Insurance, and $6/paycheck for use of the weightroom. I put in $80/month towards my RRSP(Retirement fund-401K I think it is stateside), and the company puts in an additional $170/month.
The taxes they take off are pretty dead bang on so when tax time comes I owe or receive only a few dollars.
For medical needs not covered my government healthcare, my company's group health covers 95% of most stuff-most dental, optomotrists, chiropractors, prescriptions. That's for around $20/month-family plan is higher, around $60. Tooth caps they pay 60%. Full wages are payed for 6 months if you are unable to work, then 60% after that til you die.
I get 3 weeks paid vacation + 9 days paid holidays, + a onetime extra week of vacation my 5th year (next summer!). We have the week off between Xmas & newyears if we use up a couple of our vacation days.
Now this company is better than the rest I worked at previously. Others did not have a retirement play or group health, or they offered heath at much higher premiums.
After looking at it, I guess things aren't always greener south of the border, just warmer.
Run away screaming (Score:4, Informative)
Grants are GIFTS of stock outright. Options are the odds that the stock will sell at a lower price than the strike price when you exercise them.
EVERY single person I know is underwater on their options. Every Single One.
Options are essentially worthless in this market for the forseeable future. They were a useful tool to attract people by offering them a great deal of other peoples's money in the future.
Re:Cash, baby - that's where it is at. (Score:2, Informative)