Jeremy Goldstein is a consummate professional in the world of compensation management, and he has a few things to say about Knockout options. Full partner in his own firm, Jeremy L. Goldstein & Associates LLC, Goldstein has assisted numerous companies in business matters. His portfolio is filled with some of the biggest business ventures of the past decade. He participated in the Dow Chemical Company merger with Rohm and Haas, as well as Goldman Sachs et al./Kinder Morgan, Inc., and Verizon Wireless/ALLTEL Corporation. His recommendation for Knockout options is poised as the go to solution for the stock option problems many companies are facing.
Knockout options provide protection from the risk of overhang. Many businesses dealing in stock options as compensation for their workforce face such risks if the value of their stock plummets. As many employees do not exercise such stock, or see any value in it, this creates overhang that effects actual investors. Stock options are also costly for companies to provide, and if they are not exercised, that expense goes to waste. Many companies still like to deal in stock as it provides tax benefit. A knockout clause avoids overhang by rendering the stock options void if the value falls past a certain mark. This provides incentive to the workforces to actualize them, as well as place more value in them.
According to Goldstein the use of Knockout options would have other benefit as well. It forces employees to have a better understanding of the market. From that understanding, they have the ability to exercise their options for great benefit. It leads to healthy trading as well as increase interest in keeping the value of the stocks up. Employees who do not want to lose their options will vest in helping the company stay healthy as well.
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