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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.

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

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

Trouble is, these companies often extend the offer to seniorstaffers only, a practice that risks undermining morale among therank and file. "If you don't offer stock optionrescissions to all employees, you can end up with everyone hatingyou," says Alan Johnson, a New York City compensationconsultant. One way to avoid that is to package rescissions soeveryone appears to win, even if some winnings are bigger thanothers. Senior management might trade old options for new in aone-for-one swap, while lower-level staff get a two-for-onerate.

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