What are Your Options? - strategies for managing employee stock options - Brief Article

Workforce, August, 2000

Companies' insatiable appetite for employees is forcing many of them to supplement salaries and bonuses for non-exempt employees with stock option plans. Should you follow suit? There is no set formula for determining how deep within its ranks an organization should grant equity, but here are questions that can help HR frame a strategy for granting options, and determine your company's ability to expand its options program to stay competitive.

1. What is your company's status? Is it a start-up, an IPO, a high-growth candidate or a low-risk, mature business? A company's option-granting program tends to reflect its status, with IPO companies making large option grants to attract employees when its valuation prospects are still uncertain.

2. Is the percentage of options granted annually at your company lower than your industry's standard? Calculate your company's "run rate:" Divide the total number of options granted per year to employees by the total number of shares outstanding. If your company's rate is below that of its competitors, it can increase the total number of options granted to its employees without exceeding competitive practice.

3. What percentage of total outstanding shares of your company's stock is allocated to your employees? One way to approximate this is to calculate the total number of shares owned by executives plus the outstanding stock options held by all employees as a percent of total shares outstanding. If this conservative approach puts the percentage of employee-allocated stock below that of your competitors, option grants are a way to close the gap.

Source: Susan Lowry, PricewaterhouseCoopers, Westport, Connecticut. She is a director in the firm's rewards and performance management practice.