Posted on: Sunday, March 15, 2009

Repricing plans rescue worthless stock options

By Tomoeh Murakami Tse
Washington Post

WASHINGTON — Nearly 100 companies have undertaken programs that
allow employees, many of them executives, to exchange sharply
depreciated stock options for new awards with more generous terms.

The companies, from Google to United Therapeutics, argue that the
exchange — which increases the chances that executives will be able to
collect rewards even though the company stock has plummeted — is
necessary to retain and motivate personnel.

Critics say the
practice undermines the purpose of performance-based bonuses and puts
the company's executives and workers on a different plane from ordinary
shareholders, who have no choice but to hold on to battered stocks or
sell them at a loss.

"It goes to a sense of entitlement, which I
think is misplaced," said Con Hitchcock, a lawyer who advises activist
investors on corporate governance. "There are a lot of people other
than executives who could use good-performing stock in their portfolio."

Stock
options can account for a significant portion of pay for some
employees, especially executives. They give the holder the right to buy
stock at a future date for a specified price. For example, 100,000
vested stock options with a "strike price" of $30 would translate to a
$2 million profit if the company's stock is trading at $50. The strike
price is typically the price of the stock on the day the options are
awarded.

The collapse of the stock market has dimmed prospects
for cashing in existing options. Since the beginning of last year, at
least 96 companies have implemented or proposed option repricing or
exchange programs, according to Equilar, a compensation research firm.

As
of late last year, nearly 99 percent of Fortune 500 chief executives
held options with strike prices above the current stock price, Equilar
said. Such options are "under water."

As a result, Equilar
expects 21 companies will implement exchange or repricing programs in
the first quarter of 2009, compared with only seven during the same
period last year. An additional 24 companies, including Starbucks and
chipmaker giant Advanced Micro Systems, have proposed such programs,
most of which are subject to shareholder approval.

Many other
companies are expected to take similar action, compensation advisers
and directors say. As the recession deepens, they say, shareholders
should expect a surge in the number of companies repricing options.

Google
is in the process of implementing a program that allows holders to
exchange their options for new ones with a strike price equal to the
closing price Friday of $308.57. It reached a high of $741.79 about 15
months ago.

"It just makes sense given our goal to retain employees," said Google spokeswoman Jane Penner...

more... http://www.honoluluadvertiser.com/article/20090315/BUSINESS06/903150347/-1/RSS04?source=rss_business