Grant Thornton LLP launches Underwater Stock Option service - 29 Sep 2009

Grant Thornton LLP launches Underwater Stock Option service

"Stock options have generally played a critical role in U.S. companies'
total compensation programs, making up the majority of equity-based
incentives granted to key employees and executives," said Don Nemerov,
a Compensation and Benefits executive director at Grant Thornton. "The
current economic downturn has stripped away much of the value of these
instruments while companies continue to book some form of compensation
expense."

In most cases, companies that have underwater stock options have
four alternative solutions: 1) exchange underwater options for new
options, 2) exchange underwater options for restricted stock or
restricted stock units (RSUs), 3) exchange underwater options for cash
or 4) do nothing. Each alternative comes with pros and cons that should
be considered. Of the approximately 140 exchange programs implemented
or pending this year, it has been about an even split between an
exchange for options and exchange for stock.

"Addressing the underwater option issue brings with it various cost,
valuation and tax challenges," said Neil Beaton, national
partner-in-charge of Grant Thornton's Valuation Services group. "It is
important that companies with underwater stock options evaluate each of
the options available to them and choose the one that best fits its
employee compensation needs."

"In fact," added Nemerov, "Grant Thornton recommends that companies
with underwater stock options take the five steps below to address
whether or not an exchange program makes sense for your company:

Assess and quantify the problem and alternative solutions.

Design and test your program.

Determine 'go/no go' status of exchange and other equity incentive solutions.

Submit for board of directors and shareholder approval (as required).

Implement and communicate."

The new service helps companies come up with a strategic framework
for exploring an exchange strategy; analyze the extent of the issue and
model alternative scenarios that quantify program effects on cost,
dilution and likely participation; value the options; understand the
SFAS 123(R) and section 162(m) implications of any exchange program;
and assist in communicating the program to participants and supporting
the program's administrative requirements upon implementation.