Restricted stock can be issued to any type of employee in a company, and its issuance and administration are not governed by Ruleper se. Both conditions must be met in order for the sale of stock to be classified in this manner. Updated July 20, Therefore, the shares of stock cannot be delivered until vesting and forfeiture requirements have been satisfied and release is granted. Issuing restricted stock is a better motivating tool than granting stock options for two reasons.
Many companies are concerned by the Financial Accounting Standards Board FASB recommendation that stock options be shown on the company's expense sheet. Especially high-tech and start-up companies are concerned because they fear losing one of their great motivating tools. There is already a better compensation choice, restricted stock options. Issuing restricted stock is a better motivating tool than granting stock options for two reasons. First, many employees don't understand stock options.
They don't know that they have to take action to realize any gain. It is far easier for them to understand a vesting period on restricted stock. Second, restricted stock can't become worthless like stock options. Even if the stock price falls, restricted stock retains some intrinsic value. One of the advantages restricted stock has from a management perspective is it is better at motivating employees to think and act like owners. When a restricted stock award vests, the employee who received the restricted stock becomes an owner of the company.
He or she has to take no further action to make it happen. Actual ownership of part of the company is a powerful motivating tool in trying to get employees to own the company's objectives. This makes them more focused on meeting goals. They are viewed by most as a high-risk gamble that has a potentially great reward. An individual may very well invest a couple of years helping a company grow and prosper when compensated for that time by stock options.
However, their loyalty is to raising the stock price so the can cash out and make a bundle. They have no loyalty to the company and its goals. Often, they will choose actions which raise stock price in the short term, thus increasing restricted stock versus incentive stock options potential gain, rather than taking a longer-term view that will help the company. The LA Times reports that Microsoft plans to replace stock options with restricted stock grants.
The Altria Group, Inc. If you have questions about restricted stock awards as a motivating form of compensation, see the Restricted Stock FAQ. There is a comparable FAQ about stock options here. Restricted stock awards are a better tool for motivating employees than stock options. Restricted stock awards are better than stock options for motivating employees to think and act like owners. Restricted stock awards are better treated on the financial statements than stock options.
That makes restricted stock awards better for the employees, management, the investors, and the regulators. There is no reason to not make that choice. Updated July 20, Motivation Through Restricted Stock Issuing restricted stock is a better motivating tool than granting stock options for restricted stock versus incentive stock options reasons. Manage This Issue Restricted stock awards are a better tool for motivating employees than stock options.
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Compensatory vs Non-Compensatory Stock Options
One of the major benefits that many employers offer to their workers is the ability to buy company stock with some sort of tax advantage or built-in discount. There. How Are Restricted Stock Taxed? Restricted stock and RSUs are taxed differently than other kinds of stock options, such as statutory or non-statutory employee stock. A Stock Appreciation Right (SAR) is an award which provides the holder with the ability to profit from the appreciation in value of a set number of shares of company.