Stock Options Gaining Global Acceptance

June 20, 2001 ( - New research indicates that stock options, once only popular in the US, UK and Canada, are catching on in other countries, offering employers a new recruiting/retention tool.

Now Argentina, Germany, Italy and Spain are expected to show a 50% increase in the number of long-term incentive programs in place by 2003, subject to certain market conditions, according to projections by Towers Perrin Global Resources.

In addition, the number of these plans is expected to double in South Korea, and increase threefold in both Mexico and Japan, according to “Stock Options Around the World”, a study which examines the practices of large companies in 22 countries.

In most countries, stock options are now more widely used than performance plans, restricted stock plans and other long-term incentive programs.

Program Challenges

However, implementing these programs is not without its challenges. In the US, UK and Canada, the market downturn has diluted their effectiveness as an incentive. Moreover, in countries with no history of share ownership, attitudes toward risk and untraditional forms of compensation can make the implementation of global stock options problematic.

While the customary practice is to award stock options at the current market price, some interesting differences have emerged in global practice:

  • in Sweden, premium options are often awarded with an exercise price above the company’s common stock price on the day of the grant;
  • in Taiwan, discount options below the market price are just as likely to be offered as options at the market price, and
  • In the Netherlands, the likelihood that options will be offered at either market or at a premium, is the same

Position Portion

While eligibility criteria vary, the study found that awards by position and by reporting level were evenly split, with most companies applying guidelines to make grants rather than relying on position as the standard.

Eligibility typically begins at the vice president or director level, although in countries more familiar with the benefit plans are more likely to include employees below middle management levels.

The report recommends that in order to maintain consistency in global plan designs, employers should monitor ever-changing local regulations and market practices in countries in which they have a presence, specifically:

  • share utilization, which indicates the number of total outstanding shares that can be earmarked for grants;
  • taxation, plan design should recognize local conditions and cost-saving opportunities;
  • rights, which are often an issue in countries with labor protection laws which limit the employers flexibility to reduce a recurring award.