When Oracle's CEO vacated his position in September of 2014, Mark Hurd was one of two people who were in charge of the company. The year 2015 saw Oracle's Mark Hurd compensation increase by 41%. The two co-CEOs had a base salary of $950,000. A large part of the compensation came from stock options. When Hurd got the position at Oracle, he was guaranteed the purchase of stock options worth $10 million shares. He had the chance to buy $5 million worth of shares for the following five years as long as he was an Oracle employee. At the end of the fiscal year 2015, according to filed proxy financial statements from Oracle, Hurd received just over 53 million in total compensation with a stock award value of $27.6 million and an option award value of $24.6 million
Before working for Oracle, Mark Hurd was the CEO of Hewlett-Packard, one of Oracle's biggest competitors. He left in 2010 at a time when HP was having some trouble with its management. HP gave Mark Hurd compensation of over 35 million dollars. His severance package was about $12 million, and he had 775,000 HP shares with a performance bonus of 345,000 shares. The stock options that Mark Hurd had with HP are what got him such a substantial compensation. It is for the same reasons that Oracle gave Mark Hurd compensation of such a tremendous amount.
Oracle and HP are not the only companies that compensate their top executives with stock options. The reason corporations do it is to give their employees the chance to enjoy the development of the enterprise. What it means for an employee to have stock options is that they can buy a company's stock at an agreed price. Employees get the advantage of deciding the amount of stock they want to buy. Offering stock options compensation by companies is one of the incentives that they use to attract top talent.
A company can use stock option plans to get professionals that it may not otherwise get. If an enterprise does not have enough cash to spend on hiring high-quality employees, then stock options become excellent tools. They are effective ways for companies to hire workers. Even when employees buy shares at discounted prices, the benefits that come with stock-based compensation outweigh that. An enterprise can keep its base salaries low and offer good stock options plans. Such a move will enable even mid-sized companies to hire the best of the best in the business without going bankrupt.
Stock options are about generating loyalty from employees. CEOs like Mark Hurd who have money in their companies will align their interests with the goals of the enterprise. Such moves are good for both the companies and employees. For instance, when Oracle stocks rise in the market, then Mark Hurd compensation increases because of the value of the stock. Employees with stakes in a company will put in all their work to ensure its success. Offering stock options is one of the best ways to get dedicated employees in a corporation.
Stock option compensation can earn an individual a lot of money, especially if the company is doing well. It is like in the case of Mark Hurd, whose base salary had been the same for several years. As a matter of fact, his salary offer when he began at Oracle was $950,000, and that was still his base salary at the end of the fiscal year 2015. The total compensation at the end of each year varies depending on how a company fairs. If Oracle's stocks appreciate in the market, so do Mark Hurd compensation amounts. In cases of strong performing enterprises, employees can make more money even without considering their base salaries or other benefits.
Stocks can also make good compensation options for performance packages. Employees who perform their duties well and surpass expectations usually receive rewards. A company has various options on how to do that, and some choose to give company shares as was the case with Mark Hurd when he left Hewlett-Packard. He started working at the company when it was facing a lot of problems but worked hard to turn it around. As part of his severance package, HP offered him shares as a performance bonus.
Rewarding employees with cash bonuses may not always be feasible, especially for large companies. Shares offer cost effective ways of showing appreciation for workers who put in extra work to keep the company going.
Typically, the stock-based compensation that a company offers will vary through various employee levels. Companies establish stock option plans that cater to different types of employees. A CEO and presidents, for instance, will have different plans from other mid-level management workers. For example, Mark Hurd compensation from Oracle will not be the same as that of a manager or even a vice president. The specifics of a stock option plan will usually depend on the company.
When considering a stock-based compensation, it is vital for an employee to understand all the terms that come with it. Workers should find out how long they have to wait to purchase the shares and their prices too. Exercising stock options at the wrong time can cause a lot of trouble and losses. There are also tax regulations that come with stock-based compensations. Companies offer two common types of stock options; non-qualified stock options and incentive stock options.
Both alternatives have their tax rules, and it is essential to know what those are. With incentive stock options, the option holders can defer their taxation until they sell their shares. Companies offering ISOs don't get tax deductions. With Non-qualified stock options, taxation is on the spread, which is the difference between the market value of a stock and the value of the option. With this stock option plan, companies can get tax deductions on the spread.
Stock options are not entirely new concepts, but it is only recently that they have had an impact in the corporate world. Initially, only big corporations used stock options as compensation but now a lot of other businesses can consider them. Companies with cash flow problems can take advantage of the benefits that stock options payments offer. Small enterprises that expect growth in the future are some of the biggest beneficiaries of stock option plans. It is essential to note that establishing a suitable stock option plan for employees is critical. Not every company can pull it off, and it is advisable to get legal help when doing it.
Both corporations and employees can benefit a lot from stock-based compensation. The advantage will, however, depend on the types of options that are on offer. By improving a company and growing it, employees increase their income value. An employee like Mark Hurd has collected millions over the years in compensation because of the work he has put in every company he heads.