Exercise Your Options

When is a whole pie worth less than a piece? If your business is that pie and you're holding all of it, you may be hindering the company's growth, making it worth less than it could be. That's because a huge trend today--in companies as diverse but as successful as Microsoft and Starbucks--is the distribution of slices of the business to employees. "There are plenty of strong reasons to give employees an equity stake," says David Lewin, a professor at the University of California, Los Angeles' Anderson Graduate School of Management. "Every employee should have some compensation at risk. They'll share in the downside and in the upside."

This thinking is big news for small companies. Until just a few years ago, only the senior-most executives in the majority of companies were offered equity stakes. What changed all that? Entrepreneurial businesses, mainly in high-tech industries, began making stock options available to all levels of staff. Suddenly, stories of Silicon Valley office managers worth several million dollars began to emerge--and that turned options into a very powerful human resources tool. The payoffs have been obvious, with many companies that are most generous in options awards--notably Microsoft--emerging as growth pace-setters.

Robert McGarvey writes on business, psychology and management topics for several national publications. To reach him online with your questions or ideas, e-mail rjmcgarvey@aol.com

This article was originally published in the April 1998 print edition of Entrepreneur with the headline: Exercise Your Options.