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HR Magazine, November 2002 - Weighing Your Options: Seeking Alternatives

By Steve Bates   11/1/2002

The added cost of expensing stock options is forcing many companies to rethink policies that provide stock options to rank-and-file employees. But what, if anything, will replace the options in compensation packages?

Unless an organization is awash in cash and can afford to substitute raises for options, “there is no alternative” that offers as much upside to employees as stock options have in recent years, notes Bruce Ellig, SPHR, former chair of the Society for Human Resource Management (SHRM) board of directors and author of The Complete Guide to Executive Compensation (McGraw-Hill, 2001). “Unfortunately, many companies are going to cut back on or eliminate their broad-based option plans.”

John Sturges, SPHR, of the Benefits and Compensation Design Group in New York, who has been active in the SHRM Compensation and Benefits Committee, sees a move by some organizations to offer restricted stock, which allows the company to set specific conditions for awarding stock shares to employees.

Another approach is offering stock appreciation rights, which allow workers to receive the appreciation on company stock without a cash investment.

Another alternative is “phantom stock”—actually an incentive award akin to a gift certificate that is given to employees when the business reaches a specific financial goal. “Tie bonuses to the book value of the company. It gets you out of stock land,” says Robert Heneman, a professor of management and HR at Ohio State University.

And there are non-monetary solutions, notes David Balkin, chair of management at the University of Colorado at Boulder. “There are all kinds of reward and recognition programs. You can make heroes out of your people who are taking chances and innovating.”

Adds Ellig: “Companies ought to revisit the statutory stock option,” which is more advantageous to the employee than the popular non-qualified stock option because it is not taxed at the time it is purchased. This, says Ellig, encourages employees to hold on to stock.

—Steve Bates  

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