Option usage: some continuity, some change.

• Author: Marshall, Jeffrey
• Position: Stock Options - Survey reveals how companies are using stock options programs currently

It goes without saying that many stock option programs are under a microscope these days. Reports of huge option grants to CEOs of under-performing companies and speculation that option programs helped accentuate corporate reporting fraud have created a climate ripe for change. While expensing of stock options is still voluntary, many corporate governance experts think rules mandating such expensing are practically inevitable.

In this environment, when many option programs--especially at high-tech companies--are underwater, WorldatWork and Sibson Consulting developed a research study last year to determine how the use of options has changed in the past few years. WorldatWork and Sibson, a division of the Segal Co., analyzed results from about 300 respondents in public companies.

The survey produced a series of mixed responses. Companies reported that the goals of their option programs--employee attraction, retention and motivation--haven't changed, nor have the major external shocks of the past year, such as the corporate governance scandal and continued stock market woes, triggered many changes in option plans. Even companies watching their stock prices continue to drop have not altered the usage pattern for employee stock options.

However, companies are clearly tying stock option grants to individual and corporate performance, rather than providing across-the-board grants to all workers of certain classes of employees, the survey revealed. And while companies surveyed awarded about the same number of options in 2002 as in 2000, the overall value of the options granted was lower last year. In fact, the survey showed, the percentage of pay represented by options has remained stable over the past few years, standing at about 15 percent of total compensation, with the value determined by either the Black-Scholes method or fair...