I must admit I have seen people going down this path a couple of times in my career… great people I know doing very well making tons of money cashing in stock options. I’ve made a few bucks here and there (I only said a few bucks…) too – all good. The rewards of knocking the cover off the ball should yield a big pay-day for those who deliver real value to the organization. And if the incentives are properly aligned with the company’s’ goals and objectives, stock options are a wonderful way to incentivize and reward employees who perform. In a perfect world (not always) the entire company exceeds expectations and BAM! EVERY employee shares (at some level) in the stock option pot of gold.
I’ve also seen the other side of chasing stock option gold. Not pretty. It’s when the bulk of the options go to a handful of executives - leaving crumbs for all who are not inside the CEO’s circle of trust. It’s a hot topic these days. Stock options should be used to drive organizational results across the entire employee population. And let’s face it, if you have the right people on the bus- the company is far better off incentivizing the entire employee population to succeed – not just a select few. The results will likely be far greater in the long-run with all hands on deck.
Another phenomenon I’ve seen? Job hopping from one stock play to another. When I lived in Silicon Vally in the 2000 time-frame, I met a number of people who would intentionally join a start-up, work until their stock options were vested (some at $0.25 – $0.50 per share) and resign only to find their next stock option play. Forget about loyalty or career progression. It was all about creating their own stock option mutual fund of sorts, hoping one of their former employers would announce an IPO and deliver a triple or a home run some day. Never about their career, their role, the culture or doing what they loved to do. Nope. It was all about the Greenbacks. Even if they hated their job. And isn’t that sad?
At the end of the day, I feel strongly that if an employee loves their job, has a passion for what they do and deliver meaningful value - the compensation will always be there. You will either create your value internally, or externally if you are excellent at what you do. Stock options or not – you should find what you love to do and go do it!
After years and years of waiting for the big pay-day, chasing the stock option dream may turn out to be for not. I’m just sayin’.
Tim -
Great Post – I have to admit I’ve been in the stock option game a couple of times – not the deciding factor in taking the job – but definitely sold on the “great” opportunity I would have cashing in on these. What great recruiters they were! I’m still waiting on my stock option windfall!
I have used leftover (under-water) stock options to wallpaper my home. It’s painful. Don’t get me wrong, I love the incentive in having options – but I no longer over-sell it to candidates. I refuse to sell sunshine and deliver rain… It should be an extra incentive that “might” happen one day (or not). Thanks Tim!
From my limited understanding – one of the things that strikes me with options is that they are only good if I have the money to exercise them. If you give me options – at some point I have to have the cash to buy stock at the price in the option. For most of the schlubs out there that could be a problem from the word go. Most executives make enough moolah that they have ready cash to invest when they can.
Until the based compensation allows for investing in the future – most won’t get the option to exercise their options.
That can be a problem depending on the type of options you have. As I recall the two most common type of options are “Qualified” and Non Qualified” options. On pure memory the Qualified (ISO) shares do not require the option holder to pay for the stock until the one is ready to sell. In most situations you can usually do a “cashless” transaction and pocket the difference from the current value per share less the option price based on the stock grant. In any event – I think we are on the same page Paul.
Interesting post Tim,
Something else that is affecting the stock option situation is the massive depression in the number of companies going public that Sarb-Ox has caused. It is now so much more expensive to take a company public that the organization must be far larger than in the past… to the point that it’s not a viable exit for the investors in most cases.
There are far fewer companies going public – it’s just too expensive to implement S-Ox and all the rest of the regulatory requirements for most companies to do it anymore. Dangle those stock options all you like… the chances of an IPO to enable you to cash them in is extremely small today. I think more and more the workforce realizes this, and it’s no longer the giant carrot it once was.
Good point Sean. Stock options can still have a pay-day if the exit strategy is for the Company to get purchased by a bigger player. That is much more likely in this new economic world we live in.