Underwater options

Produced by Tolley in association with Helen Wood of HLN WD TX
Employment Tax
Guidance

Underwater options

Produced by Tolley in association with Helen Wood of HLN WD TX
Employment Tax
Guidance
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What are they?

An option becomes an underwater option if the current price of the shares under option has fallen below the price payable on the exercise of the option. Underwater options cause concerns when there is no reasonable prospect of share price recovery in the short or medium term, eg two to five years.

When do underwater options appear?

Underwater options commonly arise if after an option is granted:

  1. •

    there is a bear market where share prices fall generally

  2. •

    specific events affect a particular sector,

  3. •

    there is war or a natural or other disaster, eg oil companies shares after a major oil spill

  4. •

    there is lack of confidence in a particular company or its management, eg following highly publicised criticism of Board members

Why is this a problem?

For the option holder, the option has no value and provides no current financial incentive or reward.

For the employer, if underwater options do not incentivise employees, or even have a demotivating effect, staff performance and retention may be affected. Employees can

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Helen Wood
Helen Wood linkedinicon

Founder, HLN WD TX , Employment Tax


Helen Wood is the founder of HLN WD TX, a share schemes and employee incentives advisory business.She qualified as a CA with ICAS in 2009 and has worked as a specialist reward and incentives advisor for 17 years, spending 13 of those at KPMG followed by 3 ½ years as an Associate Director at RSM. Helen has worked with businesses ranging from start-ups to fully listed companies, spanning owner-managed businesses, private equity portfolio companies, and AIM listed businesses.She advises on a wide range of employee share schemes and employment related securities matters including the design and implementation of effective management and employee incentives; tax valuation of employment related securities, buy and sell side transaction support, HMRC compliance, tax due diligence and employee ownership trust transactions.

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