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Out of the Hole?

Some people do get all the breaks, but that's no way to run your stock options.

This story appears in the August 2001 issue of Entrepreneur. Subscribe »

What can you do when your company's shares perform so poorly that owning options on them is dragging your employees into the hole? Some companies are canceling exercised options to save staff from heavy financial losses and the stinging tax bite.

Trouble is, these companies often extend the offer to senior staffers only, a practice that risks undermining morale among the rank and file. "If you don't offer stock option rescissions to all employees, you can end up with everyone hating you," says Alan Johnson, a New York City compensation consultant. One way to avoid that is to package rescissions so everyone appears to win, even if some winnings are bigger than others. Senior management might trade old options for new in a one-for-one swap, while lower-level staff get a two-for-one rate.

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