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Underwater Stock Options Essay

4882 words - 20 pages

The Case of the Underwater Options Evaluation

Professor Coleman

EMIS 3375

15 April 2014


Leanne Gallagher took a job as the senior software engineer at the start-up corporation MoniMed that was expected to go public within the following year. She was offered a salary of $85,000 with the option to buy 30,000 shares of stock in the company for 30 cents a share. She knew the risks of taking a pay decrease of $20,000 and that the stocks might not increase in price. Gallagher also wanted more information on the company’s financial standing before she accepted the job, but after one phone call she gave up her search. She saw that the typical target price for medical start ups was $10 ...view middle of the document...

In this case, Grantz’ choice to withhold critical information from someone looking to join a company and become a new stockholder is morally wrong. Grantz knew that his company was going under and losing money and did not have the capabilities to succeed in the foreseeable future as a business venture, which directly affects any employees and stockholders involved in the company. Grantz’ actions ended up not only affecting the employees’ financial assets, but also their personal relationships, mental and physical well-being, and time lost, which for Gallagher specifically could have been spent productively at her old job position or seeking other means of employment. Citing the Principle of Utility, not only did Gallagher take a pay cut in salary by taking her new job, and lose money from her stocks going underwater, but she also lost an intangible amount of value in time lost, personal health, and personal relationships. This unhappiness is only multiplied by all the other employees of MoniMed who also experienced a loss in happiness and value from the two divorces and serious stress-related illness cited. In this case, it is important to analyze all these factors when determining the net unhappiness, because it is not reasonable to assign specific dollar amounts to the value of relationships and health, which are priceless.
Because a specific dollar amount cannot be assigned to the value of relationships and health, it is necessary to use the attributes of intensity, duration, certainty, propinquity, fecundity, purity, and extent in analyzing the weight of each cost and benefit. For instance, intensity refers to the magnitude of the experience, and it is clear that having their stocks go underwater and being unaware of MoniMed’s financial status left a very negative effect on the employees, specifically their damaged health and relationships. The intensity of negative effects is more intense than the positive effects Grantz saw.
Purity and extent are also important variables to take into account in this case. Purity refers to the “extent to which pleasure is not diluted by pain, or vice versa” (Quinn 78). In this case, the benefits the employees experienced in taking on a new challenge in the business and successfully creating their cardiovascular monitoring device is diluted by the pain of loss of their money, health, and relationships. Extent refers to the number of individuals affected, and there were obviously more employees who were negatively affected than the single individual Grantz who benefited.
The issue of withholding information occurred at least two times in this scenario. In the first place, Grantz did not notify his current employees, including Marc Cornwall, director of engineering, who interviewed Gallagher for her job. By means of transferring information, it could also be said then that Grantz did not notify Gallagher in the hiring process, since Grantz had Cornwall interview her, and when Cornwall was asked...

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