Stock Options & Your Employment Contract
Stock options have been a standard part of upper-level employee contracts for many decades. In the history of businesses, an “interest” in the companies has always been considered valuable, and those with the most influence should also have the most interest in the company’s success. These factors wrap into the tradition of the employee stock options. Stock option packages are built to provide your management and exec team with a way to literally get invested in the company’s success. By owning a small piece of the company’s value, employees stand to benefit from every little percentage-point of value created by the company every year. Greater performance from key staff members equates to low overhead and high revenue.
Changing with the Times
The stock option cycle – used correctly – is both rewarding and self-sustaining. However, new employee contracts are not immutable. When the economy, market, and workplace shift, so do your employment contract terms. Right now, we are facing a post-COVID, inflation-driven economy. The confluence of illness, closed venues, and stay-at-home orders caused incredible shifts in the industry, and the government fixes to this overreach is the inflation we are now seeing.
So, too, must employment contracts change.
Stock Options in the Inflation Economy
Many industries, countries, and iconic enterprise businesses are rethinking old paradigms now that inflation is back with a vengeance. Some companies are teetering on bankruptcy, but many are innovating and morphing themselves. Infrastructural industries are on the rise in large part due to years of underinvestment.
All over the world, investors are re-evaluating their investments – including present and future plans. Those able to stay on top have, in many cases, had to move as quickly away from falling industries and newly adaptive markets. In terms of offering your employees stock options, business can expect a little more hesitation and a lot more consulting with a financial advisor before taking the offer.
Adapting Stock Options to Employee Need & Interest
Stock options are an essential part of many business’ internal structures. Ideally, every leader within the company is also a personal investor – motivated by both pride and financial reward to help the business succeed. With certainty in the stock market destabilized and priorities changing, you can still offer stocks – but keep employee needs and preferences in mind.
Adapting the Options
Consider offering smaller batches of stock for each vesting period, or a more promising grant price. You may also offer shorter vesting periods, or the opportunity to renegotiate in 3-5 years for more stock if and when financial uncertainty blows over. This is a wonderful way to invite your employees to invest while adapting to the current mood of the workforce and market.
What to Offer in Addition to Stock Options
Each employee contract is a value-balance. The salary, insurance, stock options, and perks all balance into a value based on each role. Naturally, lowered stock option quantity can be balanced with employee insurance or perks.
Increased Employee Insurance
- Medical Insurance
- Retirement and Life Insurance
- Disability Insurance
- Inclusive Family Coverage
Insurance is usually offered in one or multiple packages. Your insurance providers define how much you can scale each employee’s package. Some providers are extremely flexible and will help each individual pick a unique set of coverage.
Health insurance is, understandably, highly valued right now because the cost just keeps rising. There has also been a rise in modular and even app-driven care, giving employees the ability to self-manage the ideal package for each household.
Don’t undersell the value of other insurance, as well. Car insurance, retirement and life insurance, mental health insurance, industrial or specialized insurance create a complete or customizable safety net.
The category of employee perks is vast, including everything you as an employer can do to offer additional value to employees. This ranges from gym memberships
- Home Office Stipend & Company Equipment
- Education and Training
- Sick and Vacation Days
- Student Sponsorship
- Fitness and Health Benefits
- Professional Success Services
- Travel and Stipend Perks
Right now, the hottest trend in employment perks is the home office, although the pendulum seems to be swinging back in favor of being in the office vs work-from-home. Unsurprisingly, employers that spent a great deal of time and resources on equipping their teams with laptops and secure wi-fi networks, are now questioning the productivity of this isolated environment.
Overall, your entire compensation package will probably contain many different elements. The key is to work as closely as you can with your employer to get those benefits and perks most valuable to you.
Our final thought on your employment is to embrace the process. Much of the disparities in compensation – including stock options – comes from the fact that far too many people do not negotiate when the time is right. And that time is always before you take a job, not afterwards. So be brave, get out of your comfort zone, and express to your future employer your desire to give 110% effort to help the team. It is a process, and one that you have to take charge of in order to get the right outcome. Please think of us as a resource here to help you in the effort!
Mark is a +24 year financial advisor veteran and Certified Financial Planner™. He founded Infinium in 2009 to bring a more personal, and truly client-centric offering to investors.