U.S. News

WSJ: Stock Options Fall Out of Favor in U.S.


Stock options in the United States are falling out of favor as a perk amid scandal and accounting and legal changes, according to an analysis reported by the Wall Street Journal on its Web site on Thursday.

In 2001, as the stock-market boom of the 1990s crested, nearly eight in 10 big companies were giving their directors options, according to a proxy analysis of 350 major companies conducted for The Wall Street Journal by Mercer Human Resource Consulting in New York, the paper said.

By last year, the figure was down to 53 percent, the paper said, adding that options are suffering a heavy backlash after big corporate scandals such as the accounting frauds at Enron Corp. and WorldCom Inc. and the more recent backdating scandal.

The percentage may drop to as low as 10 percent by 2010, because boards now consider options "somewhat problematic," the WSJ quoted Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school, and a director of two public companies, as saying.

The U.S. Securities and Exchange Commission, Department of Justice and Internal Revenue Service are investigating possible manipulation of stock options grants.

More than 160 companies have been investigated or are conducting inquiries themselves.

The main focus of the probes is backdating, or altering the grant dates of options to boost their value to recipients. The practice is illegal if done without adequate disclosure or in the absence of proper accounting and tax treatment.

International Business Machines said on Wednesday it will cease providing an annual stock options grant to non-employee directors, and will instead double the cash amount of their yearly retainers.

The stock option plan for non-employee directors will stop as of January 1, IBM said. The annual retainer will rise to $200,000 from $100,000 as of the same date.

The move by the iconic company underscores a broader repudiation of options for board members two decades after many companies began to embrace them -- and could even accelerate the trend because of IBM's reputation as a bellwether of corporate behavior, the WSJ said.