Question

What are some of the ethical concerns raised by options? Are they such that options should be dropped, as Microsoft did, or are there ways of answering the concerns and defending the practice of giving options as fair and as a legitimate approach to worker and executive compensation?

business ethics seventh edition richatd and george chapter 2

Answer 1

Employees stock option plans, popularly known as ESOPs, have been put in place to largely eliminate the agency problems and to align the employees, management and shareholders towards the same goal - that is maximization of the value of the firm. Despite being a very successful model, options do have some ethical concerns:

• Act as a bonding tool for employees and forces them to be stuck with the organization even if they don't like to be. As employees leave the organization, the ESOPs give to them stop vesting, and thus they tend to lose. Employees thus are at a loss monetarily.
• Companies don't issue cash benefits or bonuses to the employees. They defer payouts in the name of options.
• Funds are blocked. the opportunity to get deployed elsewhere is lost

However the options should not be dropped:

• they help retain employees
• they keep them aligned and motivated
• they usually helps extract better performance from the employees

The practice of giving options as fair and as a legitimate approach to worker and executive compensation, should continue.