Market corrections and rising costs to employers imperil this form of compensation. Some compensation experts are concerned that the practice of granting employee stock options is out of control. They fear that it could be working against its intended purpose of motivating employees and could possibly be endangering the economy. But this is not totally good news because the actual cost of offering stock options has been steadily increasing over the past three years.
Stock options are a great idea in theory.
They bind an employee's compensation to the long-term future of the company, bringing their interests into parallel. For start-up companies seeking to recruit scarce workers with little cash to offer, stock options have become a virtual necessity. No CEO worth his or her salt would dream of taking a new job without the prospect of millions of dollars of stock option profits. Whereas Internet start-ups used to offer stock options with incremental vesting over five years, increasingly, the trend is that companies, desperate for talent, are shortening the waiting period. In some cases, outright gifts of stock are being made, taking away much of the risk and incentive.