Stock options give people who hold these options the right to buy a share of company stock at a specific price for a predetermined period of time. Often, the set period is 10 years. The holder usually exercises the options at the price of the company's stock on the date that the options are provided. When a company does well, the stock price increases over the exercise price, which gives the options an added value. Stock options are often made a part of an executive's compensation package. They are believed to reward executives for their roles in a corporation's success. Our New York City executive compensation attorneys can advise you on the role that stock options may play in your agreement.Stock Options
Stock options are a form of incentive compensation that is sensitive to market conditions. However, they can also increase or decrease based on company performance. When a company performs well in a given marketplace, stock prices are supposed to increase. Accordingly, stock options are believed to provide an executive with incentives to perform better on the job in order to increase the value of the stock beyond the exercise price. Nevertheless, stock options are not the only type of long-term incentive offered to executives. Performance shares and performance metrics may also play a significant role in executive compensation.
Usually, an executive's employment agreement or contract provides that the stock options provided as compensation cannot be exercised for a period of time. The time period is typically 1-5 years, with five years being more common. For example, a company that hopes to retain a CEO and align the CEO's interests with shareholder interests for five years may "pay for performance," with stock options that can be exercised in a set number of years.Problems Involving Stock Options
Some experts believe stock options to have flaws as a form of executive compensation. Generally, investors lose out when stock decreases in value, but executives may not be in a worse position. The incentive to keep share prices going up encourages executives to place more weight on short-term quarterly gains than long-term interests. In one study, researchers found that in the year before vesting dates for large option grants, CEOs spent much less on long-term investments. Researchers examining 2,000 companies between 2006 and 2010 found that in the year before a vesting date, spending in research and development declined by an average of $1 million each year. In executive compensation, stock options are being replaced by shares of restricted stock, but they still form 31% of average long-term incentive packages as of 2012. They are not as definite as restricted stock grants. They are rendered worthless if the stock price on the vesting date has fallen below the price at which they were granted.
Often, the awarding of stock options is secretive. Research shows that stock-based compensation is one of the largest parts of an executive compensation package, particularly when a company is going public or has publicly traded shares, and yet the number of stock options awarded is not public. Studies also show that female executives may be getting fewer stock options and grants compared to their male counterparts. Women often earn less in all forms of compensation, but stock options are among the most confidential areas of compensation. If you suspect gender discrimination in the awarding of stock options, it is crucial to consult an employment attorney with an understanding of executive compensation and sex discrimination under Title VII, the New York State Human Rights Law, and the New York City Human Rights Law.Discuss Your Goals with an Employment Lawyer in New York City
If you are a New York executive concerned about stock options and other issues involving executive compensation, you should consult an experienced employment attorney. You can contact Phillips & Associates at (212) 248-7431 or through our online form. We handle employment litigation in the Bronx, Queens, Brooklyn, Staten Island, and Manhattan; the Counties of Westchester, Nassau, and Suffolk; as well as in Princeton, New Jersey and Philadelphia, Pennsylvania.
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