Pros and Cons: Offering Employees Stock Options

To attract the best employees, you need to have a competitive compensation package. In addition to solid salaries, healthcare benefits and retirement funds, your employees may also expect stock options. As a way to get the employees invested in the future of the company, stock options are a worthwhile offering for both employees and employers.

But stock options aren’t always a great idea. Because there is a risk attached to investing in the stock market, many employees may not see stock options as a viable replacement to a high salary. However, there are still some reasons you may want to offer them to your employees — and some reasons you may not want to.

To help you decide whether or not stock options are a good idea for your employees, let’s take a look at some of the pros and cons.

Pro: Employees Become a Bigger Part of the Company

Keeping employees motivated can be difficult. When they’ve stopped challenging themselves and are only showing up to work to get their paycheck, it can be tiresome to get them to put in a little more effort.

But when your employees have stock options, they will get more rewards depending on how well the company does. This can keep them motivated to keep going the extra mile.

Con: Additional Expenses

Giving an employee stock options isn’t a free endeavor. Not only are there tax implications that the employee would need to comply with, but stocks can also become diluted and expensive.

While there are ways to reduce the expenses associated with offering stock options to your employees, you need to consider whether or not they’re worth the effort.

Pro: Decrease Employee Turnover

If your company is performing well, giving employees stock options may prevent them from taking a job at another location.

Placing restrictions on how long the employee must be with the company before they can sell their stocks can force them to stay with the business until that time period is up. If they care about seeing the returns from the stocks, employee turnover can stay low.

Con: Stocks are Influenced by the Company — Not the Individual Employee

As we mentioned, allowing employees to feel like a bigger part of the company may push them to work harder. If this idea doesn’t apply to all individuals within the company, however, some hard-working employees may suffer the consequences.

Because a positive return on the stock depends on the entire company’s hard work, some employees may see a loss if their team isn’t working to their standards.

Pro: Cost Effective for Employers

Benefits packages can get competitive, especially if you’re trying to attract top talent. When you can’t afford to add daily catered lunches or exciting work retreats, you need to find new ways to diversify your benefits. Offering stock options to employees is a great way to add something different to the mix without racking up a big bill for the company.

Should You Offer Stock Options to Your Employees?

Stock options can make sense for many businesses, but they may also be a bad idea for others. It all depends on the state of your company, who your employees are and what growth you expect to see with your business.

If you’re a small startup just getting off the ground, stock options can be exciting for your employees — especially if you’re predicting to see some real growth. Publicly owned companies may also want to offer their employees some stock options.

However, if you do decide to give stock options, they should be provided as an optional incentive. While many employees enjoy having some investment in the company, others may not. When you can’t promise high returns on their shares, employees may not see stock options as a salary replacement.'

Author: Anum Yoon

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