Vic Di Criscio in the olden times, companies offered employee stock options to senior employees to acknowledge their contribution to the organization. However, nowadays, businesses use such stock options as motivational tools. Start-ups leverage this option in return for payments of high salaries. The choice is prevalent as the vibrant start-up ecosystem emerges throughout the world.
Leveraging Stock Option Plans
When you know your company cannot pay high salaries, one can use a smart option: stock option plans. Vic Di Criscio suggests that business owners can use a stock option plan to motivate their current employees and attract pure talent to their firm. It provides the company with the flexibility to offer stock options to the officers, advisors, directors, and even consultants. Such an option permits them to buy the stock of the company whenever they exercise it.
Vic Di Criscio States the Advantages of Stock Option Plans
- The stock option plan works best for both parties, the employees, as well as the company.
- The plan permits the employees to share in the firm’s success, boosting their morale.
- This strategy can contribute money to the company because the employees need to pay the options’ exercising price.
- It works as a retaining program.
- It provides an ownership sense to the employees. In such a way, they start dedicating and putting in more effort to create higher dividends.
- Since it works as non-cash compensation to the employees, it takes care of the company’s capital and financial assets.
- It offers a chance to the firms without a decrease in the book profits.
Disadvantages of Stock Option Plans
- The fundamental disadvantage of stock option plans is that there might occur a dilution of other shareholders’ equity when employees opt for their stocks.
- The main con for an employee is the presence of a lack of liquidity compared to the compensations or cash bonuses, especially if it is a private company. Until and unless the company develops a public market for the stock or its acquisition, the option is not equivalent to the cash benefits an employee can get during appraisals.
- Furthermore, if the company’s limited or negligible growth, its value does not increase, making the stock option nearly invaluable and worthless for the employee.
- There might occur dispute regarding the transfer of shares after the employee has left the organization.
The Process of Issuing the Stock Option
- The foremost part is to create a policy.
- With a discussion with your management, you can prepare a list of eligible employees.
- Board approvals and general meetings will conclude the approvals and resolutions involved.
- Prepare a grant letter and vest the stock option plan.
- After completion of the vesting period, the employees can exercise the option, and upon this, you will have to allot the shares.
However, thousands have become rich by using their stock options appropriately. This form of benefit is very appealing to prospective employees. Many firms’ spectacular success and the employees’ economic riches have made stock option plans a powerful inspirational tool that a company can use for its long-term success.
Such a tool helps start-ups to retain and attract talented people. With proper documentation and company growth, both the employees and the employer are at equal benefits.