Issues & Alternatives For Underwater Stock Options
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:
Week of March 16th
What's News is a regularly updated summary of news stories, typically related to compensation, that we are following, find interesting, or find baffling.
Week of March 16th…
Lost this week among all of the AIG bonus calamity (our thoughts to come on this shortly) were a number of companies seeking shareholder approval for option exchanges:
- Google announced that approximately 93% of its underwater options granted to employees will be exchanged on a one-to-one basis. Employees typically receive fewer number of options when they surrender their underwater options because they are trading in something they view as worthless for something of value, which is why many feel Google’s one-to-one exchange is quite a generous move.
- Starbucks Corp. won shareholder approval for their proposed option exchange.
- Ebay Inc hopes to allow employees to exchange their underwater options for a lesser number of restricted stock units.
- Eligible Motorola Inc employees can surrender their underwater options for either a lesser number of options or restricted stock units.
Common arguments that companies use when requesting option-exchange programs from shareholders include:
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Recent Posts
- American Bar Association Annual Meeting
- The Changing Face of Executive Compensation in IPO Companies
- Issues & Alternatives For Underwater Stock Options
- Week of March 16th
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