Page 103 - Retaining Top Employees

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Compensation: Why It (Almost) Doesn’t Matter 91

bonuses are unlike incentives in that the employee does not
reasonably anticipate a bonus in advance and the employer can
therefore give them in forms other than cash more easily than
incentives.
Deferred Compensation
Under this heading comes any compensation that is earned but
not paid until some time in the future—the most common of
which is the stock option. Stock options in particular were, for a
brief time during the dot-com boom, heralded as the panacea
for all retention ills: just give the employees some stock options
that don’t vest until some years down the line and ... voilà! The
retention problem is solved.
Unfortunately, it’s not as simple as that. In fact, the end
result can often be just the
opposite. At the extreme, Stock option The right to
stock options can have a buy stock in the employing
negative retention effect. company,usually at a dis-
Awarding stock options counted rate.The employee can then
with a vesting date in the profit (sometimes substantially) by
future simply sets a time subsequently selling the shares for
more than the purchase price.
for some employees to
Sometimes the employee cannot
leave—the vesting date or
exercise the right to buy the shares
shortly thereafter. The rea- until a specific date in the future—at
son for this is simple: with which point the shares are said to
the options held out before vest (become exercisable).
them, those employees Unexercised options expire after a
consider every little bump period of time,as prescribed in the
or hollow in the employer- stock option plan.
employee relationship as
something to endure in order to make it to the vesting date.
Instead of maturely discussing workplace issues and resolving
them, the employees adopt a “martyr” stance and wait out the
time until they can leave, options in hand.
Does this mean that deferred compensation plans, and par-
ticularly stock options, have no place in your compensation
package? Not at all. They play an important role—but it’s