Stock Options Out, Restricted Stock and Performance-Based Equity In for 2004

December 15, 2004 ( - The use of stock options to compensate executives is on the decline, with restricted stock and performance-based equity plans replacing this out-of-favor practice.

A survey by human resources firm Hewitt Associates indicated that two years ago, nearly 50% of the average Fortune 100 senior executive’s compensation was given in the form of stock options. In 2004, only 31% if compensation was doled out in such a way.

Time-based restricted stock/restricted stock units are taking the place of stock options, with 48% of companies offering them as part of a long-term incentive system. In 2002, only 29% of companies offered such programs.

The use of performance-based compensation is also increasing, with 50% of companies reporting that they use such plans. This is up 8% from the 2002 figure of 42%. Hewitt asserted that this practice will continue to grow as restricted stock comes under increased questioning.

Long-term incentives were less popular in 2004, with Hewitt finding that fewer manager- and director-level employees were being awarded such incentives. Hewitt found that only 33% received stock options or other long-term incentives in 2004, down from 50% last year.

Data in the Hewitt ( ) survey came from the company’s Total compensation Measurement database, which has been collecting compensation numbers for 20 years.