New Stock Option Awards Value Plunges

June 24, 2004 ( - While the value of new stock option awards to CEOs at large companies plunged near 60% between 2001 and 2003, there was also a sizable hike in restricted stock and long-term incentive award values.

A Watson Wyatt study found that the average value of new stock option grants declined from $10.2 million in 2001 to $4.2 million in 2003. The study also found the number of stock options declined 37% during the period.

At the same time, the value of restricted stock awards was up 58%, while the average value of other long-term incentive awards skyrocketed 80%.   But these increases were not nearly enough to offset the decline in new grant values.   In fact, the average total value of these three pay elements declined by about $5 million, Watson Wyatt found.

The decline in both the value and number of stock options between 2001 and 2003 comes as the proposed options expensing rule looms and institutional investors/corporate governance activists push for reducing stock option usage and creating new compensation arrangements.

The analysis found that the “in-the-money” value of unexercised stock options from previous grants increased significantly ( 79%) from a median of $6.7 million in 2001 to $12 million last year.   The increase in the value of in-the-money unexercised stock options was primarily due to the stock market rebound during the three-year period, the study found.

“Companies are getting serious about revamping their executive compensation programs, and the shift away from stock options is beginning to accelerate,” said Ira Kay, national director of compensation consulting at Watson Wyatt, in a news release.   “However, many CEOs have yet to feel the full impact of this swing, because the value of their unexercised stock options from earlier grants has skyrocketed.”  

The analysis examined CEOs who remained in their jobs between 2001 and 2003 at 373 of the largest publicly-traded U.S. companies.