Study: Restricted Stock Award Value Higher than Options

October 11, 2006 ( - Researchers at an executive compensation firm found the value of restricted stock awards exceeded stock option values for CEOs of companies that voluntarily adopted the new options expensing rule earlier than required.

A news release from Frederic W. Cook & Co., Inc., which conducted the poll, also said that while three years is the most common vesting period for both stock options (41% of companies) and restricted stock (44% of companies), about half of companies vest options and restricted shares over four or more years. Cook researchers said the longer vesting periods allow companies to cut their annual expenses, and may be due to the new expensing rules.

The study also found that long-term incentive practices for executives are stabilizing. “After four years of tumultuous changes in the regulation of executive pay, calm appears to be returning to long-term incentives for executives” said Edward Graskamp, managing director, and co author of the report, in the news release. “The mix of long-term incentive grant types continues to change, but at a slower rate than last year.”

Other findings include:

  • The gap between stock option and restricted stock usage continued to narrow among the nation’s largest companies. The use of stock options slid from 95% in 2003 to 88% in 2005, while the use of restricted stock went up to 71% in 2005 from 55% in 2003.
  • Stock option variations (such as “reloads” or “premium” options) have largely disappeared, with “plain vanilla” options the new flavor of choice.
  • Nearly 20% of companies have shortened option terms from the standard 10-year option term.
  • For companies using long-term performance awards, profit measures are most commonly used to determine payouts (51% of companies), followed by total shareholder return (38% of companies).


The 2006 study is based on the 250 largest companies in the Standard & Poor’s 500 Index as reported in the Special Spring 2006 issue of Business Week magazine. Selection of these companies was based on their total market capitalization – share price multiplied by total common shares outstanding – as of February 28, 2006. A complete copy of the study report is here