Labor letter makes firms hesitant on stock options

Employers are reconsidering stock options as a way to attract employees after the Labor Department said a company must figure the lucrative benefits into workers' overtime pay rates.

The higher base pay and the time-consuming task of calculating how much money would be added to each employee's base pay are making employers think twice about offering the options to hourly employees.

"Companies will no longer provide that type of compensation," said Tim Bartl, assistant general counsel for LPA Inc., which represents 250 senior human resource executives of large companies. "It forces them to redesign their compensation programs and redesign their strategy."

In a letter to a corporate lawyer inquiring about an unidentified company's stock option plan, the Labor Department said the company had to calculate hourly overtime pay based on stock options as well as hourly wages.

While Labor officials said the letter addressed a specific situation, human resource groups say many companies have similar setups.

Stock options, which are the right to buy a specified number of the company's shares at a specific price during a certain time period, have become a popular way to attract and keep employees.

"It becomes a very attractive recruiting tool for firms who are not yet public," said Joe DeGioia, president of JDG Associates Ltd., a Rockville, Md.-based recruitment firm for high-tech and biotechnology companies. "It's an allure for candidates."

High-tech companies, especially start-ups that have the potential of going public, increasingly are using stock option benefits. The Washington area has more than 3,000 technology companies.

If a candidate has a choice of employers, he will choose the company that offers stock options, Mr. DeGioia said.

Stock options have become the most common long-term incentive plan offered by employers, according to the 1999 Strategic Compensation Survey by the Society of Human Resource Management and Arthur Andersen.

More than half of the 783 companies surveyed offer some type of stock option benefit, while 31 percent are considering offering the benefit to employees.

Deron Zeppelin, the human resource society's director of governmental affairs, said those companies are bound to reconsider in light of the Labor Department's letter.

The Fair Labor Standards Act, which was created in 1938 to protect employees from unfair practices, does not address stock options because the benefit is so new.

"The law was not written to accommodate [stock options]," Mr. Bartl said. "As a result, you get wacky interpretations."

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