From the August 2002 issue of Entrepreneur

As the economy shakes off the mantle of recession, stock options seem to be still wearing the same tattered duds. But even after the flood of dotcom failures demonstrated how risky options can be, entrepreneurs remain committed to them as a tool for successfully attracting new talent and spurring productivity.

"Stock options will always be part of the start-up culture," says Chris Visser, an attorney with Preston Gates & Ellis in Seattle. "But people have sobered up and stopped seeing them as a sure thing."

That wariness has prompted a shift in compensation strategy for many entrepreneurs. "We're seeing a shift back toward cash and other benefits, such as child-care benefits or flextime," says Neal Weber, a partner at KPMG's McLean, Virginia, office.

While employees still count on stock options as compensation for the compromises of small-business employment, that expectation comes with more intense scrutiny of corporate financial statements and stock performance history. "People want to know what they're getting into," Visser says.

Employees aren't the only ones reevaluating stock options. A proposal in Congress would force companies to treat options as an expense, a prospect that will depress earnings. Most observers say lobbying will almost surely derail the effort.

Despite the past failures and future perils of stock options, companies such as Nanoventions, a micro-optics manufacturer in Roswell, Georgia, continue to use them. Scot Brands, the company's chief financial officer and vice president, says he hasn't noticed any changes in employees' attitudes toward options, which he attributes to the company's market niche. "If you can get people to believe in the product, then they see the tremendous value of stock options," Brands says. Options are especially attractive to Nanoventions employees recruited from academia, where stock options, not to mention company stock in general, don't exist.

Besides, as far as employment goes, Brands adds, "Stock options are the only way to get wealthy."

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