Every company needs capital. Capital comes from big-time investors swooping in and infusing a company with large amounts of money in order to secure a healthy future. But problems arise when investors see that many of the company’s employees are receiving stock options as a form of compensation.
Jeremy Goldstein, a longtime New York business lawyer, recommends knockout options as a form of compensation to employees in order for a company to attract more investors. The knockout option eliminates any overhang that the shareholders may have to pay out if the company’s stock drops too low.
If an employee holds stock options and the company’s value drops, shareholders may be liable for paying out an employee cashing in those options. This is called overhang and investors do not like potential overhang situations. That is where the knockout option as a form of compensation to employees comes in. Learn more about Jeremy Goldstein: https://blogjeremygoldstein.tumblr.com/ and https://www.linkedin.com/in/jeremy-goldstein-26aa1b4
The knockout option essentially knocks the employee out of compensation if the value of the company drops below a specific point. Jeremy Goldstein recommends companies are not too quick to knock employees out of their compensation. Rather, he recommends, the knockout option is only exercised if the value of the company drops below a certain point for more than a week.
The knockout option eliminates overhang which can attract more investors because of a reduced risk. Jeremy Goldstein also says that it is positive for the employee. The employee, worried about her compensation, will work much harder in order to keep the company healthy and at a high value.
Jeremy Goldstein has been a business lawyer for more than 15 years. He has opened his own business law firm after working as a partner in a separate business law firm. He advises top companies on employee benefits packages. These companies include Verizon, Chevron, AT&T, Duke Energy, Bank One and Merck.