Stock Option Grants Now Tied to Performance

May 14, 2002 ( - The primary change in the way companies have used stock option grants in the last few years is that the grants are increasingly becoming performance based, a new study found.

The survey by WorldatWork, a compensation and benefits trade group, and Sibson Consulting, a division of The Segal Company, found that nearly seven in ten of the companies responding said that the quality of an employee’s work was an important factor in awarding stock grants.

In fact, a third of the companies, or 33%, said the performance-based grants were the biggest change in their option plan in recent years. Respondents were asked about their stock option practices in 2000, 2001, and 2002.

Plan Goals Include Keeping Talent

The goals of most employers’ option plans haven’t changed recently, the survey found. The most common goals still are:

  • attracting and retaining talent,
  • motivating performance,
  • focusing attention on a company’s performance, and
  • creating a culture of ownership

Even though the granting of stock options has been much in the news lately with numerous corporate scandals involving exorbitant payments to executives of failing companies, the survey found little effect by those developments on respondents’ option programs.

Some 83% of companies said Enron and other accounting scandals didn’t force them to make stock option changes. Eight in ten said the implosion of the tech sector, with its now legendary use of stock options as compensation, didn’t produce changes while 78% said changes in international accounting standards weren’t a factor in their plans.

Of firms using options in 2002, the survey found that 98% of executives, 86% of middle managers and 37% of administrative personnel were eligible for options. 

Level of Workers’ Option Plan Knowledge

The survey found that companies are becoming concerned about how well employees understand stock option plans and the options’ value:

  • 32% agreed with the statement: “my organization does a good job of teaching employees about the value of their options.”
  • 62% agreed that “eligible employees need more information about how to influence the share price,” and
  • close to half, 46% agreed that “employees do not appreciate the long-term value of the options they hold.”

The State of Employee Stock Options – 2002, covered nearly 300 members of WorldatWork.