Do Options Really Motivate?

from the maybe-not dept

With the continuing argument over whether or not stock options should be expensed, Business 2.0 is bringing up a different (and perhaps more important) question: do stock options really motivate employees? The answer in the article is not at all – though, I question some of the reasoning. Basically, the author looks at some studies that show the aggregate results of companies that use stock options. Within any set of aggregate results, it’s very easy to lose sight of the really important statistics – since both good and bad findings are merged together in a way that will cancel each other out. Secondly, the author assumes that just because companies that offered stock options didn’t do well, they didn’t “motivate” employees properly. The fact is, employees can be the most motivated employees in the world – but if the product has no market it’s not going to matter. Finally, the article jumps back and forth between stock options for employees and stock options for senior management – as if they’re the same thing. The fact is, these are very different in that senior management has the ability to singlehandedly make changes that directly impact their options immediately – and thus, senior management stock options probably should be treated differently. Clearly, there are problems with the way stock options are currently treated. However, this article is simplifying the case way too much, and throwing the baby (and perhaps the whole tub) out with the bathwater.

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Comments on “Do Options Really Motivate?”

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Anonymous Coward says:

Re: options

tell that to half the bay area population who worked for peanuts and failed to cash out at the right time (not only getting screwed by missing out on enjoying the fruits of the labor, but also getting a huge tax bill based upon their supposed option “profits” that the government rewarded them with for not getting out soon enough).

To understand this, realize that stocks ramp down far faster than they ramp up (in fact sometimes they ramp down so quickly that it’s impossible to get out of your options with your shirt on your back)

So, yes, stock options are a highly de-motivational force (it just takes time and experience for workers to realize this fact).

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