The Golden Age Of Stock Options May Be Over
Ira Kay, the head of executive pay practice for Watson Wyatt, a human capital consulting firm says that the shift from offering stock options as part of the executive compensations packages is starting to accelerate. The values of the newer stock options that CEO’s are given at the larger companies have decreased almost 60 percent during the years 2001 through 2003; this is according to Watson Wyatt’s proxy analysis.
The large increase in the value of restricted stocks and the long-term investments in addition to the sharp rise in the “in-the-money” values of the overexercised stock options from the grant histories softened the decline.
Watson Wyatt’s analysis showed that there was a drop in the average values of the new stock options grants from a whopping $10.2 million in 2001 down to a measly $4.2 million in 2003. At the same time, the overexercised stock option values rose 58% and the long-term rewards and incentives from other investment values rose an impressive 80%.
The increases, though substantial, were still not quite enough to offset the damage done by the decline in the new grant values. On average, the total value of the new options, the restricted ones and all the other incentives decreased by around $5 million. The number of the stock options that were awarded went down by 37%.
Kay goes on to say that although a majority of the CEOs haven’t felt the full impact of this downward swing just yet due to the elevated values of the overexercised stock options that they received from their earlier grants the companies are really starting to get serious about the revamping of the executive compensation packages and programs.
The result of the decline in value of the newer stock option grants has not yet been and may not ever be mitigated by any other forms of compensation. The golden age of the stock option may be over even though they have had a significant role in assisting companies grow in economic value in years past.
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