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Stock Options Are a Win-Win Game

April 04, 1993

Dan Akst's article, "Silicon Valley Fears Narrower Pay Options Will Deter Highfliers" (March 16), uses the story of excessive compensation of a CEO to argue for a major accounting change regarding stock options. However, the proper use of employee stock options can provide the motivation that generates both growth and profit.

Employee options are a win-win game. If the stock rises, the shareholders are happy to share some of their gain with the employees who caused the success. If the stock falls, the options are worthless and do no harm.

My company broadly distributes stock options to 40% of its employees, and this has enabled our growth to over a billion dollars in 20 years.

Full disclosure of all outstanding options, including strike price and exercise date, would be the best way to inform investors of a company's use of options. Since option pricing is very complicated, booking options as an expense would only confuse the issue.

Investors should avoid companies that give most options to the CEO or allow option "repricing" when the stock price drops.

Please don't throw out the baby (employee stock option motivation) with the bath water (excessive CEO compensation).


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