What can be better than giving employees a benefit that doesn't cost anything? Plenty if that benefit is company stock. In a cash-strapped economy it is often tempting for an employer to assuage the sting of decreased wages by making a grant of stock options or restricted stock.
With a privately held company, this is rarely a good idea. Unless the company wants the recipient of the stock to actually become a successor owner, or unless the stock is part of an overall benefit plan like an employee stock ownership plan or employee stock purchase plan, stock as a benefit can be a mistake. Why? I can name 10 good reasons:
1. Dilution – a grant of stock, or even a stock option, does have a cost. It dilutes the value of stock to the existing owners. Just as a gift of a kidney doesn't involve cash, it still takes something from the grantor
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