Rethinking Employee Compensation

Today’s fast-paced environment requires companies to think outside of the box when designing its executive compensation plan. If the plan is too generous then you run the risk of having the CEO treat it like their own personal ATM by awarding themselves millions of dollars in company loans and corporate benefits. Read more:

At one point employee stock ownership plans (ESOP) were an attractive option, however, with the rise of ethical questions behind executive compensation it is becoming more problematic to justify the excessiveness of executive pay and the appropriateness of using government funds to dole out bonuses, retention awards, and incentive compensation.

According to Crunchbase, Jeremy L. Goldstein, partner at Jeremy L. Goldstein & Associates LLC, advises that companies and their board of directors should have a separate compensation committee and compensation policy that clearly states its strategy for attracting and retaining top talent.

In a recent article, Mr. Goldstein, chair of the Mergers & Acquisition Subcommittee of the Executive Compensation Committee of the American Bar Association Business Section noted that companies should look to implement the “knockout option” as a way to reward its senior executives.

These stock options have the same time limits and vesting requirements as an employee stock option plan, however, plan has a built-in feature that reduces the limits of value of the stock if a specified price level is exceeded.

Using this approach advised Jerry Goldstein, allows a company to reward its employees and avoid excessive costs provided the right strategy is adopted.

In addition, if the company’s stock is experiencing some fluctuations because of the market, incorporating the knockout strategy into the firm’s compensation plan should reduce the organization’s liabilities thereby increasing its bottom line. It is a win-win for the employee and the employer.

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