I sometimes grudge the fact that I never made any money with stock options. But do I deserve any at all ? Let me find out. First, let me establish a logical basis for granting stock options to an employee. Stock is ultimately a share in the business and to get a share of the business, broadly speaking: a). One should have invested one's own money as capital (in which case the stock compensates for entrepreneurial risk taken)  or b).One should have been in a position to do something that would enhance shareholder value directly and importantly tangibly. I stress the words directly and tangibly here and c). The difference in shareholder value added between an outstanding performer and an average one should be significant enough to grant options to motivate the outstanding performer and d). The base salary should be low enough compared to the shareholder value added to justify share options.

Case a). Granting options to a project manager. Base salary: 80K
Sub case 1: Great manager manages the project well and delivers 10% ahead of schedule with associated 10% lesser cost at an increased operating margin of 30%. Believe me, this is not an easy act.
Annual Revenue from  project : $1M
Operating margin          : 30%
Earnings from project   : $300000
Share holder value added : $6M (assuming a p/e of 20).
Sub Case 2: Average manager delivers 10% behind schedule with associated 10% cost overhead at an reduced operating margin of 25%. 
Annual Revenue from  project : $1M (most clients ultimately pay up!)
Operating margin          : 25%
Earnings from project   : $250000
Share holder value added : $5M (assuming a p/e of 20).
There is an added cost due to loss of interest due to delayed payment which I shall ignore here.



Case b). Granting options to a sales manager.Base salary: 100K
Sub case 1: Great manager signs three large deals aggregating $50M at an increased bill rate that allow a projected operating margin of 30%
Annual Revenue generated : $50M
Operating margin          : 30%
Earnings from the manager  : $15M
Share holder value added : $300M (assuming a p/e of 20).
Sub Case 2: Average manager signs one deal for $5M at an decreased bill rate that allow a projected operating margin of 25%
Annual Revenue generated : $1M
Operating margin          : 25%
Earnings from the manager  : $250K
Share holder value added : $5M (assuming a p/e of 20).

Seems like the superstar sales guy deserves a few options. His contribution to share holder value is direct, tangible and is an incredible 3000 times his base compensation and he outperforms his "average" counterpart by a factor of 60.
The superstar project manager for all the long nights he has put in has only managed a contribution to share holder value that is 75 times his base pay and he outperforms his "average" counterpart only by a factor of 1.2. Moreover, his contribution is not as direct and as tangible as that of the sales guy. After all what is a project manager without a team ?

It is never easy to link individual contributions to shareholder value, and the logic in the arguments above are not watertight, but well it is clear that I am either moving into sales or going back and ranting to my boss. :-)