Retention plans these days generally favor cash over stock options, due in part to the stock market's volatility and qualms about the economy. But options still are an essential part of many retention packages. Towers Perrin, a New York consulting firm, found that nearly half of about 200 companies it surveyed had made all-stock retention grants in the past three years. These grants, typically to keep employees if there is a takeover or to match a competing offer, were in addition to regular annual stock-option grants. Stock options do carry the risk of an employee exodus once the deal closes.
Options allow the holder to purchase stock at a set price.
But most options automatically vest when there is a change of control at a company. That means employees can cash out as soon as the acquiring company takes over. The idea, she says, is that employees need to feel they will benefit from the deal just as shareholders do. People come to expect it. Ms. Hanford is a reporter for Dow Jones Newswires in St. Louis.