Designing and Implementing a Broad-Based Stock Option Plan

Abstract

Companies are increasingly interested in implementing broad-based stock option plans. By giving stock options to nonexecutives, companies make good the promise of letting employees share in the company's success. However, in the variety store of broad-based option plans, one size does not fit all. It is therefore important to balance the benefits of implementing a broad-based stock option plan against its economic and other costs. Good results in implementing broad-based stock options require extensive education and consistent communication to employees, a review process to modify the plan to reflect changes in business needs, and an increase in the stock price so that the plan generates value for participants. But, even a good plan design, one that achieves important business objectives at a reasonable cost, can still fail due to inadequate effort, market risks, and maintenance difficulty.