Underwater stock options

Founded in by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Nobody likes to see their stocks go down. But for employees who get paid in part through stock optionsstagnant and falling share values mean a big pay cut. When most people think of stock options, they picture highly paid corporate executives for whom stock options are just part of a lush compensation package.

It's hard to feel sorry for company leaders when their options end up worthless. After all, they bear responsibility for the decisions that determine whether their companies will succeed and prosper. But stock options aren't just for the executive boardroom anymore. Technology companies like Microsoft NASDAQ: YHOO used stock options to attract talented employees while preserving precious cash.

Now, though, you'll find broad-based employee stock option plans not just at tech firms like Cisco NASDAQ: CSCObut throughout the business world, at companies including PepsiCo NYSE: PEPStarbucks NASDAQ: SBUXand Southwest Airlines NYSE: The National Center for Employee Ownership estimates that 9 million employees have stock options as part of their compensation.

A double-edged sword When the economy is strong and stocks are performing well, stock options provide huge incentives for employees. Whereas simply increasing salaries or benefits rewards individual performance, stock options give every employee a sense of ownership in their company, helping give everyone a stake in the successes and failures of coworkers throughout the business.

And unlike fixed-cash awards, stock options give employees the potential for huge gains -- as those who worked for Amazon. AMZN during the late s can attest. Stocks, however, don't always go up, and falling share prices make the shortcomings of stock options clear.

If employees' options prove to be worthless, they'll focus more on what they gave up to get them, and workplace morale will drop. And unlike executive-centered options plans that often end up repricing underwater options to restore their value, making adjustments to companywide options plans seem to occur much less frequently. The best of a bad lot If you have stock options with your employer at much higher prices than where your stock currently trades, there's no magic solution that will suddenly make them best book for indian stock market beginners again.

Instead, like an outside investor, you have to look at your employer's business impartially and decide whether you think its prospects are favorable.

One good thing about stock options is that since they typically vest over several years and can expire as long as 10 years from when you best analyst stock market simulators them, you'll often have enough time for your company to recover from a bad economic cycle and see its stock price rise again.

So if you determine that your employer is suffering only a underwater stock options setback, there's a decent chance that your options may someday have value again. However, if you think your employer's problems aren't going away anytime soon, you'll want to consider alternatives. Here's a plan to follow:. Creating a financial plan around stock options presents a unique set of challenges, especially when the underlying stock is struggling.

But even if things look bleak now, you never know when a market recovery could belajar forex dasar get your option holdings back in the black.

To learn more about which stocks Fool co-founders David and Tom Gardner believe will weather the downturn and reward investors, take a bookkeeping job from home look at this newsletter service with a free day trial today.

Fool contributor Dan Caplinger has never owned employee stock options, but he does own shares of Starbucks. Starbucks and Microsoft are Motley Fool Inside Value recommendations. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.

Bringing Underwater Stock Options Back to the Surface

The Fool's disclosure policy is a great option for you. Dan Caplinger has been a contract writer for the Motley Fool since As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.

With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world. Skip to main content The Motley Fool Fool. Premium Advice Help Fool Answers Contact Us Login.

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When Your Stock Options Are Underwater -- The Motley Fool

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