The End of Stock Options?

By Cydney Posner

This article in the WSJ, "Stock Options Face Extinction," reports that "stock options are disappearing as companies gravitate toward restricted stock awards. The trend is a result of shareholder demands, tax-law changes and the financial crisis, which has left many employees holding worthless options….In 1999, stock options accounted on average for about 78% of long-term incentive packages. That figure fell to 31% last year and is expected to shrink to 25% in the next two years, according to consulting firm James F. Reda & Associates." Underwater options "can hurt employee morale," almost working in reverse, according to one CFO quote in the piece. In addition, "because restricted shares are worth more to start, [a company] can give fewer of them than options, avoiding shareholder complaints about dilution of their holdings."

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