If you work at a company where they give you "stock option refreshers" based on your performance I'm sure you've been in a similar situation. Chances are that you already own some of your company's stock, so of course it's in your best interest for the stock price to go up.
But then, assume that you've done a great job this year and your boss comes to you after your annual review and says "The company would like to thank you for your hard work thus far and your continued commitment to the success of our company. Here are 100 company stock options." (Remember, cash bonuses are to reward past performance, stock options are to retain top quality people.)
Usually, these new options are granted based on a stock's price for a certain date. You want the grant price to be as low as possible so that you make the difference between the current price and grant price whenever you sell them. What if there's another wrench in the system though too? What if your company enforces a very strict trading window saying you can only sell shares or exercise option between certain dates?
In this case you can find yourself in a bind. You want the stock price to soar so that you can sell your current options while it's high. But you also want it to drop so that your new options have a low grant (strike) price. It's a dilemma and I'd rather have prices going up since the new options don't vest for at least a year in most cases. I'd argue it's best to stick with the long-term outlook and therefore the new option grant price won't be a big issue if the company is healthy and overall the stock prices continue to rise over the new 5-10 years.
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3 comments:
I'd look at it as a "win-win" situation whatever happens. If the stock price is low when you get "refresher" options, that's good for your grant price, and if the stock price is high when you get them, that's ok because you know the stock will continue to go up and your current stock is worth more too. Either way, over the long term stock prices "tend" to increase, so if the company has a future, so will the stock.
trading windows are for your protection, as well as the company's. you don't want to trade during those periods, options or otherwise, for good reason. also, i would argue that (unless you are with one of the companies that has found to be recently creative)the employees have no influence on the strike date, and the stock price at the strike date.
Yeah I agree that it's to protect both parties. But some companies have really long blackout periods which can make it difficult to turn stock into cash when you need the cash.
You're definitely right that employees have no influence on the price for the strike date. That's just a matter of timing with annual reviews or whenever the refresher grants are given. What I meant in the post was that employees hope for the stock to be at a low, rather than a high for the strike price.
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