Why eBay Compensates Employees With Stock Options

Subject: Company Analysis
Pages: 2
Words: 473
Reading time:
2 min

Stock option plan has become a very important aspect of many organizations, especially in the 21st century, where businesses are faced with numerous challenges in coping with difficult economic situations, which minimizes the company’s ability to meet its short-term financial obligations. eBay, therefore, decided to come up with a unique stock option plan for employees, managers, and directors. The concept of a stock option plan has gained a lot of popularity due to the numerous benefits that stakeholders within an organization can derive from such a program.

The whole idea of the stock option plan was crafted at a time when the US economy was having trouble, and hence firms were really struggling to remain competitive despite the huge expenditures incurred to keep their staff and directors in their positions. This strategy, therefore, created an opportunity for companies to remain competitive by taking care of their valuable asset in the form of staff and achieving desired growth levels in their businesses. eBay, therefore, embarked on stock option plans as opposed to other strategies like cash due to the following reasons.

The company had grown its staff level from just a single staff to over 1900 between 1995 and 2000, and hence it considered its management and other staff as an important component in driving the growth of the company. It was, therefore, important to retain them and benefit from their services for a longer period. The only way of doing this was to make them feel like part of the company and maximally benefit from the success of the company as not only employees but also as major shareholders, and hence stock option plan was the best way of achieving this. Due to the nature of the business at eBay, the management had developed a strong relationship with clients, and hence the growth in the business was dependent on the long-term existence of the management and other key staff.

The firm had experienced a volatile stock price in the past due to a high level of turnover in staff, and hence the company was occasionally forced to recruit staff, and such changes in management was a major factor in sending the wrong signal to the market. The company, therefore, needed d stability in its human resource, particularly on the managers who played a critical role in driving the company vision and mission. Due to the economic conditions during that time, it was very difficult to attract and retain highly qualified personnel in the business without incurring high costs, which could affect the business profitability, and hence the company realized that a stock option plan was a better method of managing costs in the business. It could therefore utilize its excess earnings in the expansion and growth of the business.