Times have changed in the labor market, and firms should review their options-granting policies, not just their accounting policies. An employer that needs wage flexibility, and that has a market value related to its workers’ market wages, should consider issuing stock options broadly. But remember that these options are not great for motivating recipients; the options are used to manage and smooth compensation costs as labor markets change.
Paul Oyer, oyer_[email protected]
Paul Oyer is associate professor of economics at Stanford University’s Graduate School of Business. His research concentrates on incentives, the effects of firing costs, and other areas of the economics of human resources.