Survey Finds Broad Options Pullback

February 18, 2004 ( - A Deloitte survey has found that many companies are slashing their stock option program, which will impact the number of options granted to rank-and-file employees.

Based on responses from 165 nontechnology Standard & Poor’s 500 companies, 75% plan to or already have reduced stock-options use, and half of those will limit eligibility to management or executives, CBS MarketWatch reported. A third plan across the board cutbacks.

The movement toward basing option grants on pay scale concerns report author Michael Kesner, leader of Deloitte’s Chicago executive compensation practice. “I think it could be devastating,” he said, adding that limiting broad options grants to only part of a workforce won’t help “create the sense of partnership that you want at a company. In talent-intensive businesses you can’t afford to have half of your workforce acting as if employees and management are in a constant war.”

He estimated that a large corporation shifting from a broad-based option program to limiting grants to management and executives would reduce the amount of options it issues by a third.

As for reasons for the options pullback, respondents cited: pending accounting changes, concerns about dilution, and a reluctance to asking stockholders for more shares. Instead, survey respondents plan on shifting to more cash-based performance plans, time-vested restricted stock and performance-vested restricted stock, according to the survey.

The respondents to Kesner’s survey, which was conducted in January, represented companies with median sales of $2 billion and 8,000 employees; 28 % of companies were manufacturing firms and 12% were financial services firms.