The Watson Wyatt analysis found that, for the 643 Fortune
1000 companies that reported on new option grants in 2007 and 2008, the
disclosed fair value of those grants fell by a median of 8.8% in 2008, compared
with a 1.7% decrease in 2007. On aggregate, the total fair value for all the
companies fell from $26.8 billion to $23 billion, a decrease of 14.2%.
While the impact of economic conditions played a role,
“[s]ome of this option decline is due to the continuing shift away from
these awards to other equity vehicles such as performance shares,” said Steven
van Putten, senior executive compensation consultant at Watson Wyatt, in the
Overall, for the 903 Fortune 1000 companies that reported
expense in both 2007 and 2008, total stock compensation expense increased by a
median of 2.4% in 2008, compared to an increase of 10.1% in 2007. These
compensation increases, however, are partly due to the transition provisions of
Financial Accounting Standard 123(R), “Share-Based Payment,” the
press release said. Watson Wyatt explained that although these provisions were
first effective for the 2006 fiscal year, companies are only now starting to
have a full cycle of awards reflected in their expense.
In aggregate, these 903 companies experienced a total stock
compensation expense decrease from $63.6 billion in 2007 to $58 billion in
2008, a fall of 8.8%.
Industries with the steepest drops in the value of new
option grants included education (-37.5%), property and construction (-25%),
transportation (-20%), and health care (-15.9%). Other industries with steep
drops were financial services, retail, and high technology.