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Greenband

09/04/08 9:08 PM

#17805 RE: the big guy #17800

Broad stock option ownership is more associated with start-up (non-public) companies. The options can be worth a lot of money if there is rapid appreciation of the stock (e.g. company goes public or is purchased). Most early stage companies aren't profitable so worry less about dilution. Granting large numbers of options also allows you to sometimes pay employees less.

Granting stock options doesn't cost the employee any money. At a public company, the stock options must be expensed. This has caused broad-based grants of stock options to decrease somewhat at public companies. It has also increased the issuance of RSU (Restricted Stock Units) to executives and high performing individuals.

Both of the above options don't require the employee to put at risk any of their own money. I was discussing the requirement for certain executives to purchase stock with their own savings - sometimes a substantial amount. This puts "skin in the game". The executive feels the pain if the company does poorly. Assume the average high level executive has $3-5 million saved. Having to put $1 M of that into company stock certainly aligns your interests to that of the company!