Out of options? Stock options may be out of favor, but the benefits of employee ownership never go out of style explore these alternatives - Compensation

HR Magazine, August, 2003 by Chris Taylor

Options Are Still an Option

Even though a number of good alternatives exist, don't forget about stock options entirely. Options remain a decent avenue to consider-particularly if your company is a startup, say, that doesn't have a lot of cash on hand but does have equity with which to lure talent.

"A lot of companies couldn't exist without stock options," says David Wray, president of the Profit Sharing/401(k) Council of America in Washington, D.C. "There's nothing wrong with them, if they fit the purpose of your program." Plus, with the toppling of Saddam Hussein and an economy that's slowly strengthening, stock options presumably won't be going underwater quite as often as in the past three years.

But with the trend toward mandating recording options on the balance sheet--the Financial Accounting Standards Board voted as much in April, although final details have yet to be worked out--companies are doing a couple of things to decrease those expenses, says Blair Jones, a senior vice president at Sibson Consulting in New York. One is to reduce the time within which employees can exercise their options. The second is to limit participation. "You'll have to be choosier about how you distribute them," says Jones.

That's what Topeka, Kan.-based Payless ShoeSource recently decided. The company has been offering employees a mixed bag of stock options, restricted stock, stock purchases and company stock in its 401(k) plan for years, says compensation director Stephen Slier. But when the firm nearly depleted all its authorized shares--and saw the expensing of options looming on the horizon--it opted to limit participation and trim the value of what it was granting.

"We'd love to be able to provide equity throughout the whole organization, but with all the changes going on, we're not able to do that," says Siler.

CHRIS TAYLOR WRITES ON EMPLOYMENT ISSUES FOR SMART MONEY MAGAZINE IN NEW YORK.