Jeremy Goldstein Makes the Case for Knockout Options:

Jeremy L. Goldstein is a partner and founder at boutique law firm Jeremy L. Goldstein & Associates LLC. He holds a B.A. from Cornell University, an M.A. from the University of Chicago and a J.D. from New York University School of Law. His firm specializes in advising CEO’s, management teams, corporations and compensation committees in the areas of corporate governance and executive compensation.


Jeremy Goldstein has become well known over the past decade for his involvement in numerous large corporate transactions. He is currently serving as the chair of Mergers & Acquisition Subcommittee of the Executive Compensation Committee of the American Bar Association Business Section. Jeremy is considered one of the leading executive compensation lawyers in the United States and serves as a member of the Professional Advisory Board of the NYU Journal of Law and Business.


In a recent article featured on Jeremy Goldstein explained that knockout options are helpful to employers. In the article, he discusses the recent trend for corporations to cease providing employees with stock options. While some did this simply as a money-saving strategy, many corporations have chosen to do this for much more complex reasons. Jeremy breaks it down into three primary problems that companies face that make them decide to stop with employee stock options. The first problem is that a company may have their stock drop significantly when they offer these options to employees. This, in turn, causes it to often be impossible for employees to exercise their option, making it counterproductive. A second problem is that employers have generally become wary of this method of compensation because economic downturns will often render a stock option as worthless. Lastly, he points out that stock options become burdensome to a business’s accounting department. The cost of offering these stock options is often more expensive than any financial benefits that are gained. In fact, employees themselves often prefer receiving a higher salary as appose to being given a stock option.


Despite these issues, Jeremy points out that offering stock options to employees is not without any benefits to an employer. Employees who have a stock option in a company are often motivated to perform at a higher level because they know that their stock options only become valuable to them when the company is performing well and its stock value is on the rise. The solution that Jeremy offers up to this question that has both pros and cons is for employers to offer their employees knockout options. These offer employees many of the same benefits as a standard stock option but if the share value falls under a certain amount, the employees lose them. Knockout options won’t solve every issue associated with stock options but they do eliminate many of the major problems associated with stock-based compensation for employees. Offering knockout options will ensure that non-employee investors don’t have to worry about overhang threats due to stock options that no one could use. The knockout option also results in lower executive compensation figures which cause a company’s annual proxy to more accurately reflect earnings. This is a win because it looks better to shareholders. Learn more: