Upward Stock Option Repricing
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Companies often reduce the exercise price of employees' outstanding stock options to the current stock price to restore the options' incentive effect and retain talented employees. However, in some cases companies raise the exercise price to provide tax benefits for option holders under certain circumstances.
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The theory in the article makes sense, but for the record the calculations are off. That is, at the "critical value" used in the text of 14.43 (an unstated assumption you make is exercise at vesting), without repricing the after tax profit to the employee will be 4.43 ((14.43-5)*.47), whereas with repricing the profit will be lower 2.96 ((14.43-10)*.67). The correct critical value is 21.75 calculated by equating (x-10)*.67=(x-5)*.47 which yields a profit of 7.8725 per unit either way - that is ((21.75-5)*.67)=((21.75-10)*.47)=7.8725. So repricing upwards makes sense from the employees point of view if the expected value at vesting/exercise is 21.75 or higher.
Oops, the second calculation is actually ((21.75-10)*.67)=((21.75-5)*.47)=7.8725