They're betting that the workers can bail the boat out faster than the water can rush in. All will profit as all join in the common cause of moving the company forward. That's the upside. Granting options enables managers to pay employees with an IOU rather than cash, with the prospect that the stock market, not the company, will one day pay up. And yet, options can be a time bomb, inflicting damage in future years not only on a company's financial underpinnings, but also on the fragile sense of trust between leaders and the led.
Some financial experts believe options have gained credibility for the wrong reasons.
They have been made possible because current rules allow them to be accounted for in lax and dubious fashion. Moreover, their soaring popularity is inextricably linked with an external event, an unusually long bull stock market. While options are lauded as an effective incentive to keep employees motivated to achieve the long-term goals of a company, they can, however, often bring about the opposite result. Options, which can well turn out to be worthless, place undue risk on many unsuspecting employees. Conversely, among a minority of more savvy workers, options create a lottery mentality that perversely drives employees from company to company in restless search of the next big payoff, snubbing any expectations of loyalty to a particular company.