Stock options are not always the best choice.

• Position: Employee stock options - Interview

BNC: Why do you think it's bad to give options to most employees?

As with a lot of business fads, it started with top-level executives. Those people are very conscious of every dollar of stock price. But in driving options deep into an organization, you start to run into people not in the same position to affect the price. When you give options to an engineer, their incremental effect on price is trivially small, and they should be clearly aware of that. It's hard to imagine they perceive the effect of them coming in on Saturday. The question is, if we just gave employees salary, could we make them happier? Quintiles pays $15 million [the estimated cost of options outstanding]. Even if 1,000 employees get options, that's $15,000 each. You'd think that would be enough to attract employees.

[TABULAR DATA OMITTED]

BNC: And with options, if the stock price goes down, employees lose income.

In some ways, companies lose each way. If your earnings go way up, the share price goes up, these people exercise options, and you lose the opportunity to sell those shares for their true value. If the price goes way down, your employees have to make do with less than they expected. You can just say, 'Well, you're out of luck,' or you substitute something else, perhaps options at more favorable terms.

BNC: Intercardia's options would account for 19% of outstanding shares. Is that common for a company losing money?

Frankly, they tend to do more of it because it doesn't require cash upfront. You can hire employees today. But you're really sacrificing your future at some level. The mind-set is, they come at no cost to the company. But certainly if you're a shareholder you view it as a very real cost. If the company ever does well, this additional percentage of shares outstanding is going to kick in. As soon as these things become valuable, the company is going to have to come up with the shares and sell them at bargain-basement rates to employees. Even if you think Intercardia has a bright future, there's going to be 20% more shares outstanding, which cuts the share price.

BNC: Will we see big option programs in North Carolina?

That would be my sense. Between 1992 and 1997, companies offering broad-based option plans went from 10% to 30% nationwide. The number of Americans eligible doubled to 5 million. I've had people from this area say they just started doing this. Like BroadBand Technologies, in response to their competitors on the West Coast. Business Week...