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Employee Stock Options?
Evil Butters asks: "ComputerWorld has an interesting article regarding the decline of Employee Stock Options. Long gone are the days when companies would pass out stock options like toilet paper (as you were lucky if it was worth as much). Since most of us are probably in IT related fields, is anyone seeing any turn-around in compensation packages -- especially for IT folk? Everywhere I look, companies are still cutting back and finding reasons why compensation does not need to be increased (except for CEO's of course) no matter what your performance is like. But according to the article, 54% of the top S&P 250 companies are (at least) using restricted stock as performance perks, etc."
This is all about the taxes, and accounting. Options were great because they were paid for by investors, not the company. That's changing soon.
Now they need ways to pay non-salary money, that comes from nowhere - print more stock!. And they may as well do things that keep you around longer as they do it. Luckily, printing more stock still doesn't cost the company any money, it's from the current investors that get diluted.
It's getting really hard to pay your workers with other peoples money!
- Adam L. Beberg - The Cosm Project - http://www.mithral.com/
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I don't really see the great charm of stock options, specifically as part of your employment renumeration. Options are a crap shoot even at the best of times - a lottery if you wish. Since you're depending on it for stuff like food and housing, work compensation should be as predictable as you can make it. You want to reward me at an IPO - set me up for a hefty end-of-year bonus instead.
You want excitement - use a bit of your own salary to buy a lottery ticket (or some small-business shares). Or start a business of your own, and get all the pre-IPO excitement you can handle.
Trust the Computer. The Computer is your friend.
But being able to buy a 9 year old stock option when it has more than tripled in value is pretty sweet. Plus you tend to keep it then. This leads you to accumulate wealth rather than piss it away on the latest doodad or geegaw. So it is good for you and your company. You company benefits because it does change your outlook when you own a good sized portion of your company. Of course the down side is obvious. If the stock hasn't gone up since it was issued.... well you know. That sucks then.
I believe that the problem is that there are a lot of other areas which need to be addressed first before stock options are even considered. First (and foremost in my mind) is health insurance, dental insurance, vision, and so forth. My wife and I are having a hard time trying to decide on what kind of insurance to get. This is because of the $1,400.00 she is bringing home, almost $400.00 of that is presently going towards insurance.
After looking up insurance, sure you can get $200.00 med insurance, but then it has a $10,000.00 deductible on it! Since we pay out maybe $2,000.00 a year max for medical costs this doesn't make sense.
Coupled with the rising cost of gas, electricity, and food in general - the average joe is thinking more along the lines of "Am I going to have enough money to even eat?" let alone think about stock options which, in some cases, are better used as toliet paper.
Speaking of taxes (as per the election where everyone kept saying that they were not going to raise taxes to pay for everything) - think of this: Every time the feds print more money it is an invisible tax upon you. Because the more money there is in circulation - the less that money in your pocket/bank/whatever is worth. So Mr. Bush doesn't have to raise taxes - he can just print up some more money and ta-da! You have just been taxed! And ya know what? They don't even have to ask Congress for permission to do so.
Someone put a black hole in my pocket and now I'm broke.
When there are more people than jobs, they don't have to pay you what you're worth, because there's someone out there, probably equally or more qualified, willing to work for a lot less.
On the contrary, they have to pay you exactly what you are worth, you are just worth a lot less than you think you are... Your worth (at least in $ terms) is defined by the market.
"I'll have a Guinness, no wait, make that a Coors Light" -Grad student I work with, who shall remain anonymous...
Heck, no longer includes options is the least of my worries- no longer includes health insurance is becoming just as common.
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
You're essentially getting paid in risk rather than money. You're taking the risk that your bonus will be worthless, vs. the possibility that your options will have tripled in value at some time in the future.
I think for most of the people I've worked for, I'd rather have $1 now than the possibility of making either $0.01 or $3 in the future.
I am a three-time loser in the stock-option arena; 1) early 80's "100,000 shares - at $10/share that's a million". Worthless. 2) Mid-late 80s - "hey you have 5% of the company stock!". Worthless. 3) "Recent" dot-bomb. 'nuff said. Worthless.
You are far better off negotiaing a fair wage, fully funding your IRA, 401K, SEP IRA, what-have-you. Hey, take a flyer once-in-a-while, if you can afford it, but remeber, it's like playing the lottery - "you can't lose if you don't play".
Paying quarterly taxes is a bitch, getting big fat gross checks is what everyone should get to realize how much we pay in taxes, if you pay your taxes without withholding. If you make even a little bit [I pay over 50K USD year in taxes and don't feel "rich", don't drive a BMW, don't vacation in exotic places...] you see how much "the rich" pay in taxes.
This issue is a bit more complicated than you think.
Well, the reason we're worth 50-60% of where we were 5 years ago is BECAUSE there are people out of work that would be willing to take a deeper cut in pay to be employed. This is certainly true in the northeast. And let's not talk about the lack of raises. The market has slumped and is very flat and a lot of good people are still unemployed or under-employed. It's gone from a seller's market in the 90s to a buyers market now, and there isn't a lot of buying going on.
Gamingmuseum.com: Give your 3D accelerator a rest.
On the contrary, they have to pay you exactly what you are worth, you are just worth a lot less than you think you are... Your worth (at least in $ terms) is defined by the market.
Not so. That's a really oversimplified view of economics.
Let's say an engineer can generate $100k/year worth of profit for me, after overhead. Let's say there are lots of engineers out there willing to work for $10k/year. How much are those people worth?
See the thing most economics classes neglect to point out is that by manipulating your costs and benfits you can pretty much get any answer you want while applying an oversimplified model to a complex situation.
Your comment reminds me of a joke:
Two economists are waliing down the street and one sees a $20 bill lying on the ground. He goes to pick it up and the other one calls out:
"Wait, don't bother!"
"Why not?"
"Well if it was worth pikcing up someone would have already done it."
See my point? In the REAL WORLD it IS possible to buy something for less than its worth.
A particular oversimplified view of the world might say that no one would ever leave a $20 bill on the ground unless it wasn't "worth" picking up, but that's an obviously silly assertion. In the real world things that are not economically "optimal" happen every day.
For a final example of the sillyness of your statement consider the worth of someone who is unemployed. Are they really worth $0/day?
Or, is unemployment itself an example of "market failure"?
See that's the funny thing here:
The same theories that say that a person is worth what the market is willing to pay, also predict ZERO unemployment.
I'm not claiming the whole science of economics is BS, BTW. The points I'm making are (IMO) why there is an actual division between microeconomics and macroeconomics.
When you look at things on a large scale, it becomes painfully obvious that none of the models being used are actually "true". They're more like trying to fit a polynomial to a set of datapoints.
Life is too short to proofread.
Exactly. The higher risk implies at a higher reward. During the dotcom boom, though, that risk seemed low.
Keep in mind as well, however, that stock options show up differently in accounting land than regular compensation. That's why so many small and not-so-small companies like stock options: those options don't come directly out of cash flow, and if that cash flow never quite materializes then the investors aren't out as much. And if the cash flow does materialize, then the employee makes a tremendous amount of money. Everyone wins. Or at least that's the theory.