Reprint permission from the September 3, 2001 issue of Crain's Chicago Business.When it looked like the Nasdaq would never give ground, new economy companies aggressively relied on stock options to lure their top managers away from traditional firms. And since tech stocks started their free-fall, too many optionnaires have been rewarded for bad performance by boards that "reprice" their options.
Doing what it takes to recruit and retain talented managers is good business. But when stock values tank, boards sometimes run scared. They fear that key managers will bolt and their companies will lock into an irreversible death spiral.
When a stock's price falls below an option's exercise price, a board may see no way out but to lower the exercise price and keep management happy, motivated and employed at the firm.
And the board will defend repricing on the grounds that the costs hurt shareholder value less
The plain fact is that repricing options sends an unmistakable signal that a company is in
Institutional and other outside shareholders are up in arms over options repricing. They take
Repricing is controversial for other reasons, too. It tends to occur most in companies that
As the interests of execs and shareholders diverge, options repricing is drawing increasing
Last year, the Financial Accounting Standards Board ruled that companies that reprice their
There's also a growing movement, led by former Securities and Exchange Commission (SEC)
For its part, the SEC has for years forced companies that reprice options to make painfully
The SEC's initiative should be applauded and its efforts redoubled.
Stock option repricing is a totally unwarranted transfer of wealth from shareholders to
Marc J. Lane is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law. He can be reached at email@example.com.
Marc J. Lane (firstname.lastname@example.org) is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law. His recently published book is Advising Entrepreneurs: Dynamic Strategies for Financial Growth (John Wiley & Sons, Inc.).
Copyright © 2001 by Crain Communications Inc.