Stock Options May Be Curtailed
Most technology companies are considering cutting back their use of stock options to reward employees or changing to other forms of stock compensation, in a further sign that the glory days of stock options are past, according to a survey of top executives in the high-tech industry.</br></br>In the survey of top corporate executives at 196 companies by the technology, media and telecommunications practice of consulting firm Deloitte Touche Tohmatsu, 65% of tech companies overall and 83% of public companies say they are looking at alternatives to stock options, which grant employees and executives the right to buy company stock at a fixed price during a specified period. Instead, most public technology companies, 63%, plan to issue restricted stock or stock units -- actual awards of stock or promises to grant such stock in the future.</br></br>The results of the survey show the extent to which technology companies are shifting away from a form of compensation that made fortunes for many tech workers in the 1990s. Options have fallen out of favor among rank-and-file employees as stock-market declines made many options worthless. At the same time, investors and regulators have blamed option plans for their role in scandals at companies like Enron Corp., where executives cashed out large numbers of options before bad news broke. Already, high-profile tech companies such as Microsoft Corp. and Amazon.com Inc. have stopped issuing options to employees in favor of restricted stock units.</br></br>Another factor in the changes, the Deloitte survey says, is a coming "drought" in options: Seventy-two percent of the survey's respondents expect to run out of shares to grant to employees within two years. New rules adopted by the New York Stock Exchange and Nasdaq Stock Market this year require shareholder approval of new stock compensation plans.</br></br>Many technology companies continue to resist dropping options, in part because favorable accounting rules have allowed them to exclude option expenses from their financial results. Accounting regulators are expected eventually to require companies to treat options as an expense. Still, 92% of public tech companies surveyed by Deloitte said they aren't expensing stock options yet.