"There are major gaps between employees' knowledge of options and the rights and value of their options packages”
"There are major gaps between employees' knowledge of options and the rights and value of their options packages”
Adi Zentner, legal counsel to Equitybee, was speaking at an event that dealt with the consequences of the crisis in the high-tech sector with regard to options and employee compensation
The distribution of options is one of the best and most common instruments or means of compensation in the high-tech sector. There are a number of types of alternative capital means of compensation for giving options and taxation considerations connected to granting options. Over the years, numerous employees became wealthy due to exercising options (in cases of an exit or issuance); however, in a declining market and when there are rounds of lay-offs, companies and employees need to reconsider and seriously deal with the various economic consequences. "There are major gaps between employees' knowledge of options and the rights and value of their options packages. In contrast to salary and vacation days that the overwhelming majority of employees negotiate over, only 40% of them negotiate over the options package they receive,” said Adi Zentner, legal counsel to Equitybee.
Zentner was speaking at the "Employee Options in Stormy Waters" event that dealt with the consequences of the crisis in the high-tech sector with regard to options and employee compensation, which was held by Amit Pollak Matalon's tax department at the APM House in Tel Aviv.
Also present at the convention were Amit Zelinger, VP and general counsel to Guesty, a platform for managing short-term property rentals and the hospitality industry, Adv. CPA Zvika Bernstein, a founding partner of IBI Capital, and Adv. CPA Racheli Guz-Lavi, a managing partner and partner in the tax department at the Amit Pollak Matalon law firm. Yoav Etzyon, Managing Partner at Amit, Pollak, Matalon and Co-Head of the High Tech department, moderated the event.
Guz-Lavi referred to the hidden damage to employee options in a declining market and spoke, among other things, about the possible options for reducing this harm. "In the current market, there are different ways to compensate employees whose options are not cash, by using capital instruments. One of those is the option of cancelling the current options and reissuing options with a lower exercise price (repricing). Another option is to cancel the current options and grant Restricted Stock Units (RSUs) instead of the cancelled options, which is what Wix did for its employees. This is the right to hold company shares which mature and become a share within a predetermined period of time. Maturity is what gives the employee the ability to sell the share and receive the money."
One of the burning issues that came up was transparency on the part of the company when giving options and how they act in order to make data accessible to employees. Amit Zelinger, VP and general counsel at Guesty, referred to company behavior toward employees with regard to the subject of options. "We very frequently encounter companies, who when they hire an employee, send the options documents by email without the possibility of answering questions or a simple explanation. I believe that all employees are entitled to a detailed explanation of the options package and the options for exercising them, including the pros and cons of each method. Transparent behavior and responsibility gives the employee a certain understanding and then the employee feels calm asking the right questions in order to understand the size of the benefit and will appreciate the company allowing him to understand his rights in a clear and organized fashion".
Zvika Bernstein, a founding partner of IBI Capital, one of the leading capital management and financial services companies in Israel, added: "Several years ago, when a new employee arrived and received options from a company, they did not know what the implications were, and the specific companies made no effort to include employees. Times have changed. As of today, transparency is gaining momentum. In the last year, we have seen a trend where employees want to know what they are getting, what terms of exercising the options are and which type of exit will give them an economic benefit.”
