Options Expensing Rules Continue to Impact Equity Comp

March 10, 2006 (PLANSPONSOR.com) - US tech firms continue prior practices as they keep shifting away from options-based compensation programs, a new compensation trends survey has found.

The Culpepper & Associates survey found that the percentage of companies offering qualified or non-qualified options fell by 11 points after options expensing rules recently kicked in, according to a WorldatWork news report.

Prior to expensing requirements, 31% of companies offered restricted stock, while 38% of companies offer restricted stock currently, Culpepper found. The percentage of companies offering performance-based stock increased from 17% to 24%.

“Although stock options remain the most popular equity compensation vehicle, restricted stock and performance-based stock have become more commonplace,” said Will Parsons, Senior Vice President of Research with Culpepper.

More than half of the companies offering employees equity-based compensation intend to maintain their current level of penetration. Of the 41% of companies making changes in the plan penetration, nearly all intend to restrict equity compensation to higher job levels than before.

The Black-Scholes option-pricing model continues to be the most commonly used method for calculating the value of employee stock options. Eighty-seven percent of companies use this method for purposes of expensing options, according to the report.

Some 73% of companies plan to make, or have made, changes to their option-based compensation plans. All of the changes involved a reduction of the use of options with 48% reducing the number of employees receiving options and 44% reducing the total number of options granted. One-third of the companies will be replacing some or all of the stock options with shares of restricted stock or restricted stock units, the survey found..

More information about the survey is at  www.culpepper.com .