As part of the introduction to the IPO Pay Reporter™, our improved market-leading IPO compensation data services, we have conducted quite a bit of analysis on trends in executive compensation at companies that have recently gone public. What caught our attention the most was the significant reduction in ownership levels for founder CEOs of IPO companies. Ownership at IPO has been trending down for a number of years, but only in the last few years we've seen the fall off become significant.
While some would point to a small sample size, this argument is really only relevant for 2008 when 16 companies had initial public offerings. In reality the continuous drop in ownership has come over several years when an average of 100 companies per year made an initial public offering. Granted, this is nothing like the 1990s, but this is the reality of the first decade of the 21st century. Fewer companies are going out, and those that do have fundamentally changed from what we were used to seeing in the 1990s.
The U.S. stock market has now lost over 40% of its value since its peak in 2007, wiping out trillions of dollars in shareholder wealth. Certain industries, like financial services and housing, have been hit even harder. Most executives and many employees now face the unpleasant fact that their stock options are underwater, and want their employers to fix the problem by repricing them. Before acting, management and Boards should carefully consider the pros and cons of an option repricing and make informed decisions about their option programs.
Reasons Not To Reprice
There are a number of reasons why companies should not reprice options, including: