Employee Stock Options are a Powerful Tool for Compensation

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Employee stock options have been a traditional perk for executives, but it’s now a growing trend among progressive companies to offer them to employees at all levels. In fact, the National Center for Employee Ownership reports that the number of employees that own stock in their companies have increased nine times in just 10 years. Smart employers have learned that offering stock options to employees is a powerful retention tool, especially in a highly competitive labor market. In addition, it strengthens employee loyalty and commitment because employees want to see the value of their stock increase, and now they perceive some control of as well as responsibility for the future success of the company.

An employee stock option program also enhances a company’s benefits package, without substantially increasing the employer’s benefits costs. For many employees, this can also be an excellent introduction to stock ownership. It may motivate some employees to take more interest in their retirement programs and become more confident to invest in additional securities. Employers that are contemplating an employee stock option program should meet with their financial advisor or attorney to create a balanced and legal program. Some of the details that must be determined include how much stock will be offered, how do employees qualify for the program, future stock option levels and whether the program is a permanent part of the benefits package.

Because owning stock may be a totally new experience for many employees, it’s important that all the details of a program are included in the employee handbook. An employee stock option program is also an excellent opportunity for employers to provide employees with personal finance training or seminars. From employees’ perspective, they want to understand the exact benefits, procedures and policies of owning stock in their companies. For example, they should learn that there are two forms of employee stock options: nonqualified, which the largest percentage of employees can choose, or qualified, or incentive stock options, known as ISOs, that have been created for executives.

Employee stock options can be a great employee benefit. Employers, however, should carefully develop a program that protects their interests and provides an opportunity for employees to take pride in their ownership and demonstrate that pride in the productivity and efficiency of their work.

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