Despite the restrictions proposed in the new Budget, stock options continue to be an appropriate form of compensation when properly instituted and awarded. Stock options are one of the rare forms of compensation that can be awarded to executives on a tax effective basis, if implemented to benefit from the stock option deduction. Also, stock options allow executives to benefit from growth in an organization only from the date of award; not its historical growth prior to the date of the award, the value of which the executive may not have contributed to, particularly if he or she only recently joined the organization. Given that stock options can still benefit companies and executives, they can continue to form part of an executive’s compensation package. However, given the changes proposed in the Budget, companies should review their stock option plans, awards and communications to:

  • Assess if the company committed to ensuring the executive would benefit from the stock option deduction; and, if so, assess the cost to the company of
  • Assess if the company has the authority to override an executive’s election to receive a cash-settled SAR
  • Assess if the company needs to clarify or comment on the elimination of the election to defer stock option benefit
  • Assess which stock options, if any, will be granted in the future with cash-settled tandem SARs
  • Assess if the company maintained its right to withhold income tax on the exercise of stock options and assess how the withholding will be handled if stock options are exercised and the stock is held