Forum Archive Index - October 2003

["terry weston" <tweston@sympatico.ca>]

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20031017/ap_on_hi_te/stock_opt ion_shortage_1

More High-Tech Firms May Drop Options

Fri Oct 17,12:06 AM ET

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By MICHAEL LIEDTKE, AP Business Writer

SAN FRANCISCO - The high-tech industry's once-rich supply of employee stock options is running dry and is unlikely to be replenished, according to a report.

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After surveying 175 high-tech companies, accounting giant Deloitte concluded that many firms will phase out stock options, even as industry leaders fight to preserve the current rules that make the awards a cheap form of incentive compensation. The report was released Thursday.

That financial advantage could be taken away as early as next year if the federal agency which sets the nation's accounting standards requires that stock options be recognized as an expense.

Coupled with a mandate requiring companies to obtain shareholder approval to replenish their stock options, "technology companies seem to sense the approaching end of an era," Deloitte's report said.

Options give employees the chance to buy company stock at a fixed cost, known as the exercise price. Options become more valuable as a stock rises above the exercise price.

Although companies throughout the country have embraced stock options, the awards have become most popular in the high-tech hub of Silicon Valley, where they are a compensation cornerstone.

Unlike regular paychecks, stock options haven't been counted as expense on most corporate earnings statements, even though companies claim income tax deductions on the gains realized by employees.

The costs of option expensing have made the issue "public enemy No. 1 for the tech community," said Ellie Kehmeier, who helped oversee Deloitte's survey, which polled 88 privately held and 87 publicly held tech companies during July and August.

Most of the publicly held companies are examining alternative means of paying employees, including grants of restricted stock that vest over several years. Software giant Microsoft Corp. focused attention on this approach in July when it outlined plans to drop stock options and replace them with grants of restricted stock.

Nearly three-fourths of the publicly held companies responding to the survey said they expect to run out of stock options within two years.

To make their options last longer, 73 percent of the publicly held companies have already reduced or plan to decrease the number of options they grant, the survey found. Most companies are making across-the-board cuts in option grants, but 35 percent of the respondents plan to ration their reserves by confining the awards to executives and managers.

Most tech companies distribute options to at least 90 percent of their employees, Deloitte said.

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