Over the last few years, we have witnessed the New Economy boom and bust. It was quite a remarkable phenomenon. However, during the frantic push to grow our businesses, we as business owners, human resource professionals, and compensation professionals forgot about one of the most important issues in any business; good communication. Now we are faced with underwater options, demoralized employees, and an irrational stock market that can't make up its mind.

What did we do that was so wrong? We forgot the basic tenets of compensation. We watched IPO's rocket to unforeseen heights, and in recent months, we watched those same companies tumble earthward. The goal of compensation is to attract, retain, and motivate our employees. A secondary goal is to give the employee base the tools it needs to find financial security in their lives, both short and long-term. Historically, equity was a tool that was used to help your employee population accumulate long-term wealth. However, during the Internet explosion, we somehow started putting the emphasis on options as a current cash replacement, and therefore the perception was that they were current cash tools.

I realize that it was part of the game. We have no money, so instead I will motivate and inspire the troops with options. It seems that the play was to create market value and cash out. This way tomorrow's option wealth could be used for today's Porsche or that big house. Now, we are all scrambling to find new ways to motivate those who are left to pick up the pieces in the Next Economy.

I hope that we can all learn a lesson from this situation, and work hard at sticking to tried and true methodologies for compensation planning. Use compensation as a tool. Communicate regularly about the various elements of the package, and their intended purpose of each. Yes, people will still exercise and sell their options, but the goal is to get them to exercise and hold, so that their interests will be aligned with the shareholder population. This will also help them to focus on longer-term issues, and the short-term focus on equity should fade.