Investors do not like risk. There is always some risk when investing in a company but there are some red flags that many big-time investors avoid. One of those red flags is too many stock options within a company. Learn more about Jeremy Goldstein: http://www.chambersandpartners.com/USA/person/485609/jeremy-goldstein
Many companies use stock options instead of more income to high-level employees. And many employees prefer this type of compensation over additional benefits or even income. But stock options for employees can be a tricky situation for investors due to a term called hangover.
Employees might try to cash in their stock options if the value of their company drops too low. This can create a conundrum for shareholders because they are on the hook for paying out the employee even though the company has a low value. This is called hangover and investors try to avoid it at all costs.
Whitepages reports that Jeremy Goldstein, a business lawyer from New York, recommends that companies use knockout options to eliminate hangover risk. The knockout option is exactly what it sounds like — it knocks employees off their stock options if the valuation of the company drops too low. This completely eliminates the risk of hangover and makes the company much more attractive to investors.
Jeremy Goldstein continues to explain that knockout options are also good for a company’s portfolio. Employees who take options often have a lowered income which can make the company even more attractive to shareholders. With manageable employee salaries and the risk of hangover eliminated, a company can become an attractive place to invest money.
Jeremy Goldstein is a 15-year business lawyer that specializes in advising companies concerning employee benefits packages. He recently opened his own New York City law firm after serving as a partner in a different business law firm. Jeremy Goldstein advises top companies like Verizon and Chevron.