CEO stock options drowning in red ink
byMar 8th 2009 1:00PM
With some large companies trading under $5 and many down 80% or more from their 52-week highs, it would make sense that stock options granted in the last two years would be worthless. It turns out that the problem is worse than most people would imagine.
According to The Washington Post, which examined figures from an executive compensation 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'."
So, should boards bring down the value of those stock options? Probably not. For one reason, companies have to take a P&L charge for repricing options. For another, shareholders who actually put money into stocks and were not granted options will not get their prices reset.
But finally, and perhaps most important, much of the run up in share prices at big companies was due to the bull market and not great corporate performance. CEOs got the benefits of the bull market when the value of their options rose. Why shouldn't they share in the pain of the sell off? What are they going to do, quit?
Douglas A. McIntyre is an editor at 24/7 Wall St.