Pros and Cons of Options, Restricted Stock Analyzed

By IR Web Report Staff 

COMPENSATION at many companies is swinging away from stock options to restricted stock, reports the San Francisco Chronicle.

In 2005, S&P 500 firms cut options grants by 20% over the prior year and their value was 22% lower, according to Bear Stearns research. Nasdaq 100 companies, meanwhile, reduced options grants by 14% while their value fell 16%.

The report ascribes the decline in options grants to new accounting rules requiring companies to expense stock options.

At the same time, however, companies have dramatically increased their use of resrticted stock. According to Jack Ciesielski, author of the Analyst’s Accounting Observer newsletter, S&P companies granted $15.3 billion in restricted stock in 2005, up 44 percent.

The newspaper notes that shareholders want options and restricted-stock grants linked to specific goals. But performance-based stock grants are rare, says the article. It cites a Radford Surveys & Consulting study which found that only 14% of 393 technology companies have performance-based stock grants.

The report quotes a variety of commentators on the reasons behind the lack of performance thresholds.

It also notes that restricted stock results is less stock dilution.

Read the article: Companies reassess stock-option grants

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