Employee stock options are schemes to enable workers to buy stakes in the companies they work for. They can be an effective way of rewarding, retaining and incentivising staff, and were historically seen as a highly desirable staff benefit.
It was thought that giving employees a stake in the company they worked for had to be a good thing as they would be more likely to have the firm’s long-term interests at heart.
Senior executives in particular, rather than focusing on quarterly or annual results to boost performance-related bonuses, would instead be in it for the ‘long haul’.
It didn’t always work out that way. Experience, especially in the US, showed that senior management would often still focus on the short term, selling newly acquired stock as soon as the latest financial results boosted the share price.
Then the global financial crisis of 2007-08 came along, and stock options became a byword for corporate greed.
In the run-up to the crisis, directors were awarding each other generous options that they sold on at the first opportunity. While they pocketed millions, other shareholders were left high and dry as markets tumbled and companies went to the wall.
So are stock options are a bad thing? Not necessarily – it depends how they are managed. In the UK, successive governments have given generous tax breaks to employee share schemes, believing it will incentivise staff, improve productivity and boost company earnings.
And it’s not just senior executives who get all the perks – two of the four schemes currently available must be offered to all staff.