Stock Options Lose Popularity - 18, Dec 2008

Stock Options Lose Popularity


http://www.ksbitv.com/business/870702.html

Major new studies released today reveal that the high technology
industry has decreased its use of broad-based stock option grants by
approximately 15% to 20%.

One
survey studied 150 U.S. and global firms, while another studied a
subset of these companies. Both were completed in the second quarter of
2004.

"These findings are among the first empirical evidence of
this trend and confirm what we've been seeing in our work with high
tech firms," said Ted Buyniski, a Mellon principal and compensation
high-technology industry leader. "Companies are quickly reacting to
shareholder pressure to cut equity grants in anticipation of expensing."

The
Mellon studies found that annual "burn rates," defined as the
percentage of a company's common shares outstanding provided via stock
options to employees, declined 30% in a one-year period.

"The
majority of these high tech firms are now managing their broad-based
stock option programs to a burn rate target," added Buyniski. "Rather
than taking a purely 'pay' perspective, they are basing the total
option grant program on what they perceive shareholders will allow."

Other findings from Mellon's studies include:

• Restricted stock programs are increasing. Restricted stock is being
  offered to more levels of employees. In addition, several firms
  replaced option grants with restricted stock in advance of stock option
  expensing to address shareholder concerns about dilution.

• Global firms are "localizing" their option grant practices.
  rather than follow global guidelines, these companies are establishing
  separate local guidelines that reflect each region's perception of the
  value of stock options, and the supply and demand issues of the local
  labor market.
  
  "High technology firms will need to seriously
  explore alternative methods to reward their high performers and ensure
  the continuity of their human capital on a go-forward basis," said
  David Hofrichter, Mellon's managing director of global compensation
  services.