Share options lose their shine with dot-com staff

Internet firms must offer executives the same perks as those offered by bricks and mortar companies if they are to keep top level staff.

According to a PricewaterhouseCoopers report released yesterday, the recent slump in dot-com shares has taken the shine off stock options.

Internet executives, under pressure to lead their companies to profitability, can increasingly expect to demand lucrative non-cash, performance-linked packages.

The report notes that internet companies are also moving towards incentive packages, such as cars, holidays and health benefits, to stem the flow of executives to the more stable environment of the bricks and mortar sector.

Although the report focused on the US, it will have equal resonance in the UK market where changes in the last budget now mean that UK executives may be liable for paying their own national insurance contributions on stock options in addition to capital gains tax.

Share options up to the value of £100,000 can be offered tax free - but only to 15 employees in any given company.

David Bevan, head of strategic development at recruitment agency Best International IT, said that the tight labour market, and the fact that employees were taxed on all benefits - not just stock options - meant that high-level executives could demand tailor-made remuneration packages to suit their individual needs.

"You have to be competitive, which demands flexible ways of renumeration. Executives are looking for security but also potential. But that potential has to be genuine," he said.

Bevan said that flexible arrangements like allowing employees to realise share options after one or two years instead of the usual three was a positive trend.

Richard Baron, deputy head of policy at the Institute of Directors, said that such a trend made sense for dot-com companies keeping a close eye on their cash reserves.

However, he said that national insurance contributions on stock options did not make them an unattractive perk.

"If an employee does agree to pay their own national insurance contributions, it will probably include negotiating a greater number of shares, so they are not going to lose out," according to Baron.