Options Desired But Not Understood

August 30, 2000 (PLANSPONSOR.com) - Although more than 10% of private sector employees own stock options, nearly 40% say they know more about Einstein's Theory of Relativity than they do about the tax implications of stock options according to a new survey commissioned by OppenheimerFunds.

Sixty-three percent of those surveyed who currently don’t own options said it would be at least a somewhat important consideration if they were to look for a new job and 28% said they would consider taking a lower base salary in exchange for stock options.

Other findings of the survey:

  • 39% of option holders said they knew “little” or “nothing” about their options and another 35% said they know only “something”;
  • 52% said they knew “little” or “nothing” about the tax implications of exercising options;
  • 75% said they knew “little” or “nothing” about the Alternative Minimum Tax
  • 11% have allowed “in the money” options to expire worthless;
  • 34% did not know whether they had Non-Qualified Stock Options (NSOs) or tax-advantaged Incentive Stock Options (ISOs)
  • 29% of option owners did not know what percentage of their options was vested.

“The good news is that companies are doing a better job of sharing the wealth with their employees,’ said Dr. Marci Rossell, OppenheimerFunds’ chief economist. “The bad news is that employees are frequently poorly prepared to tap and manage that wealth.”

Thirty-two percent of option holders had 20% or more of their financial assets in stock options and outright shares of company stock.

Proof in the “Putting”

Among workers who had never exercised options:

  • 37% said they did not want to sell because the stock has been a great investment
  • 17% said they felt loyal to the company and didn’t want to exercise
  • 49% of people thought that their company stock would outperform major competitors over the next five years.

Only 36% of all option owners have actually sought help from a financial professional. Nineteen percent went to the “usual suspects” (co-workers, friends or family members).

More than half (52%) did not get any advice at all when exercising, while only 34% spoke with a financial professional. Twenty percent consulted either a co-worker, friend, or family member.

74% of option owners felt that their company did a good or excellent job educating them on options. But in 70% of the cases, the employee was simply given a packet of material.