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Technology Stocks : Intel Corporation (INTC)
INTC 43.76+3.0%2:53 PM EST
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To: GVTucker who wrote (165231)5/17/2002 3:46:05 PM
From: Saturn V  Read Replies (5) of 186894
 
Ref < A cash bonus create motivation, too, you know. Why do more firms use options than cash bonuses? >

The discussion about options can only be understood by people who had options in the high tech business.

Options are a much better motivational tool even though high tech companies use both.

Suppose you give an employee a cash bonus of 20 % of salary if certain financial goals are met for the fiscal year. At the end of the fiscal year the employee pockets the bonus, and is free to look for an alternate job at a competitor thinking that the next years bonus is not a sure thing. So the turnover rate with cash bonus is higher.

However suppose you gave the employee an option vested over 4 years. And after 1 year, suppose that the stock has appreciated , and the vesting for each year amounts gives him an extra 20% of the salary. Typically the employee will view this as money in his pocket for the subsequent years, and will be less apt to look elsewhere. In reality employees have made very large amounts of money ( at times equivalent to their regular salary) on options every year. Even the sheer possibility of a large stock appreciation is very motivating and keeps employees locked in. Such options serve as "golden handcuffs", while the employee turn over with cash bonus tends to be higher.

It is not clear how what impact the new tax treatment will have on the granting of options. Stock Options have been the great fuel of the high tech revolution of the last 35 years. The detractors of the options have never benefited from options. The Stock Option detractors have the thinking which is more relevant to smoke stack industries.
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