Stock-option repricings are surging as companies replace
worthless holdings with lower-priced options, providing employees
a better chance to cash in if share prices rebound.
Companies considering repricing are "dramatically on
the increase," says Lance Kimmel, a corporate adviser
at law firm Foley & Lardner. "Boosting employee morale
is greater than any hit they may take to the bottom line or
Shareholders and corporate governance advocates disdain repricings
- particularly for executives and directors - because they
offer fresh potential rewards to those who have overseen sharp
drops in their firm's stock price. Other long-suffering shareholders
get no such benefit. That's a prime reason some companies
prohibit repricings while others also reprice options held
by less-senior employees.
Companies argue that options have to be repriced because
for many, they remain the cheapest way to attract and reward
employees. The widespread use of options in the 1990s bull
market enriched scores of executives and rank-and-file workers.
For example, an executive at a dot-com company granted options
at $5 might have cashed them when the stock hit $70, a pretax
profit of $65.
Yet with most stocks trading far below the exercise price,
prospects for big paydays have faded, creating a repricing
"boomlet," says Pat McGurn of proxy adviser Institutional
Shareholder Services. Looming regulatory changes, such as
requiring companies to first seek shareholder approval, are
also prompting the repricing rush, says , a securities lawyer
and Northwestern University professor. More than 30 companies
announced repricings through midyear. An additional 50 have
since announced repricings. More are expected by year's end.
The Investor Responsibility Research Center found about 50%
of recent option repricings allow senior executives to participate;
25% allow directors. Yet some, such as disposable-camera-maker
Concord Camera, even repriced those of outside consultants.
Most companies repricing are in technology and telecom, such
as WorldCom and BMC Software, which say they need to issue
fresh options to motivate and retain key employees.
But for many in those sectors, that's no longer true. "When
competition was intense, companies could make that argument,"
says Carol Bowie, IRRC governance director. "I don't
know about that now."
While tech firms reprice the most, recent repricings also
include Coeur d'Alene Mines, garden-tool-maker Acorn Products
and marketer Weider Nutrition.
Not that repricings always work. Software provider Inktomi
canceled 3.2 million options held by CEO David Peterschmidt
and other executives last year that were priced at up to $116.75.
The options were reissued at $4.21, but Inktomi stock closed
Friday at 31 cents.