With the Island abuzz with statements of change regarding the 60/40 rule and banks thinking of seeking listing on the NASDAQ, this is a great time to revisit stock and stock options as part of an employee compensation package.

Quite a few companies based in Bermuda already offer these incentives to their staff. Can it be long before more are able to follow suit? I wrote the following article several years ago, but it is more relevant today than ever before. I have updated where possible.

For many large and small companies, economic prosperity runs in tandem with loyal and intelligent personnel. As the level of job unemployment remains near historical lows, the pressure to recruit and retain a talented workforce increases.

Becoming innovative and finally recognising the contribution of human capital (employees), more companies are offering stock and stock option packages to rank-and-file employees, not just to top managers. Sought after new hires are enticed with these additional non-cash compensation incentives. What a deal for the company, no money changes hands and the grateful employee gives his/her all to see that share value climb! I once read about an Internet company CEO who heavily rewarded all of his staff (with large amounts of all kinds of compensation) as the company profits soared.

The employees loved the company president, so much so, that one stated, "these bonuses and options have so changed my life, I WOULD STOP A BULLET FOR THIS MAN!'' Well, no one is advocating anything so dramatic, but the fact is, that these kinds of incentives to all employees of a firm, and I emphasise all, almost always increase revenue.

Another story: When the original RollerBlade company owner sold out to K2 (global ski company), every single employee received a cheque (in the mail) reflecting their percentage contribution to the success of the rollerblade wave.

These cheques were substantial; some employees paid off their mortgages. Thus when a company prospers, the average staff who never dreamed they would have enough money to live a better life, now have been rewarded through their efforts on behalf of their company, the company they work for.

Employer stock and stock options have been the source of great wealth creations, especially during the bull market beginning in 1987. Thus, a growing number of employees (both foreign nationals) and US citizens may find themselves with extensive holdings in their companies' stock.

These may consist of stock options (including incentive stock options or non-qualified stock options), stock bonus plans (including stock appreciation rights and performance awards, restricted stock, company matches and voluntary deferrals), 401(k) employer stock accounts (for US citizens) and other retirement plan accounts that are funded with employer stock.

Today, it is not uncommon (in United States and foreign corporations) for 90 percent or more of an employee's investable assets to be concentrated in the one investment they know best: their company's stock.

As a result of this over concentration in an individual stock, employees are exposed to risk factors of which they may remain largely unaware or underestimate. Loyalty to the company they know best may blind them to the market, business, industry and company-specific risks to which they have been exposed.

This overconfidence is compounded when both spouses are employed (and have their lifetime pensions) at the same workplace. When economic conditions were so good for so long, seldom is more than passing thought given to the possibility that future management changes can adversely impact the profitability of the company. And in the volatile market of today, major stock market price changes may place an employee's entire financial independence, dreams and goals at great jeopardy.

Consider the predicament that dual employment caused in one family (true story) when Digital was purchased by Compaq computers (with thousands of layoffs).

The couple came to me for comprehensive financial planning (at that time, I practiced in the US). Both of them worked for Digital. Both of them had almost all of their money in Digital stock! Good financial planning strategies dictate that you never, never "have all of your eggs in one basket''.

I urged them to sell at least 50 percent of their one-horse holdings and diversify into other investments, as rumours were high that Digital was a takeover candidate.

"No, no, they said, you don't know this industry like we do, we are fine, the stock will go up.'' The husband then stated that he preferred to invest online, in other words my advice was worth peanuts, and off they went.

Not six months later, Compaq took over Digital, the stock hit rock bottom, and, I heard from a mutual client, that one of these lovely people was laid off. You probably think that is glee you are hearing in my voice? It isn't.

I care and worry about my clients. These young people had their chance at the American dream and could have had a wonderful nest egg. Instead, they went for the brass ring and were left sadder, but hopefully wiser. That was in 1997, think investors have learned anything since? Not all employee efforts yield wonderful results for a company. Sometimes, unfortunately upper management lets greed consume.

Such was the case a couple of years ago when Cendant was the highflying Wall Street darling, with stock trading around $42 per share. Suddenly, street talk surfaced that Cendant might has `misstated' some revenues. No one actually said at the time, looks like they `cooked the books!' One of the largest hotel franchises in the United States, Cendant also owns other companies like Jackson-Hewitt which is a huge tax-preparation firm.

Senior management of Cendant should have had a little visit with their tax consultants before they decided to enhance their revenue outlook.

They are still facing charges of manipulation of financial data and fraud (it's stock closed at $14.50 per share July 14, 2000). It has been a long road back to credibility.

One career employee I met at a investment broker conference in June of 1998, told me she accumulated in excess of $185,000 (value at that time) in her retirement plan, all in Cendant stock. Her pension plan today (and her hard work for 15 years) is still worth less than $65,000 today! Well-run companies with excellent human resource departments understand diversification. They and the company investment advisors construct employee compensation plans that are sufficiently diversified so as to avoid the dangers of the above situations.

Next week, we further discuss the present and future impact of compensation packages that include a company's own stock and stock options in the Bermuda market onshore and offshore.

Readers, are you as fascinated as I about the origin of many `sayings?' "To be or not to be'' from the great man Shakespeare; "Go for the brass ring'' which has a very different origin.

Merry-go-rounds of many years ago were made as beautiful creations with hand carved wooden horses. When you rode one, outside of the whirling circle, mounted at eye level on an opposing wall was an open hand wearing a ring. As the momentum of the merry-go-round picked up, the riders leaned out of their saddles and plucked a steel ring from the hand.

Soon as they did a new one replaced it. Every so often, the ring was made of brass! If you were lucky enough to `go for the brass ring', you got a free ride.

There are few of these magnificent pieces of culture left today. Most were taken apart, sold or just thrown out. But there is one left In Oak Bluffs, Martha's Vineyard, Mass., and it is a wonderful sight to see, fully restored, children (and some grannies) shrieking with laughter.

Someday I hope to take my grandbabies there. Life is not always about money, sometimes it's about living.

*** Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or any other investments. Readers needing specific assistance should seek professional advice from their financial advisor.

Martha Myron CPA is a Bermudian, a Comprehensive Financial Planner, a NASD Series 7 licensed investment broker and a U.S. tax practitioner. She is Programming Chair for the Financial Planning Association/ Bermuda. Questions regarding this article may be sent to her at 234-0290 or Email: marthamyron y northrock.bm